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<TITLE>CANON INC.</TITLE>
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<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 12pt">UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION
</DIV>

<DIV align="center" style="font-size: 12pt">Washington, D.C. 20549
</DIV>

<DIV align="center">_________________________</DIV>


<DIV align="center" style="font-size: 18pt; margin-top: 5pt">FORM 20-F
</DIV>

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<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><FONT face="Wingdings">&#111;</FONT>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">REGISTRATION STATEMENT PURSUANT
TO SECTION&nbsp;12(b)<BR>
OR (g)&nbsp;OF THE SECURITIES EXCHANGE ACT OF 1934</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">OR</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><FONT face="Wingdings">&#254;</FONT>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d)<BR>
OF THE SECURITIES EXCHANGE ACT OF 1934<BR>
For the fiscal year ended December&nbsp;31, 2005</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">OR</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><FONT face="Wingdings">&#111;</FONT>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">TRANSITION REPORT PURSUANT TO SECTION 13 OR&nbsp;15(d)<BR>
OF THE SECURITIES EXCHANGE ACT OF 1934</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;
</DIV>
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" valign="top">For the transition period from ____________ to ____________</TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">OR</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><FONT face="Wingdings">&#111;</FONT>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;
</DIV>
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" valign="top">Date of event requiring this shell company report <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></TD>
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<TD align="center" valign="top" style="border-bottom: 1px solid #000000; border-top: 1px solid #000000">&nbsp;<BR>Commission
file number 001-15122<BR>&nbsp;
</TD>
    <TD>&nbsp;</TD>
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<DIV align="center" style="font-size: 24pt; margin-top: 12pt">CANON KABUSHIKI KAISHA
</DIV>

<DIV align="center" style="font-size: 10pt">(Name of Registrant in Japanese as specified in its charter)</DIV>


<DIV align="center" style="font-size: 24pt; margin-top: 12pt">CANON INC.
</DIV>

<DIV align="center" style="font-size: 10pt">(Name of Registrant in English as specified in its charter)</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt">JAPAN<BR>
(Jurisdiction of incorporation or organization)</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo 146-8501, Japan<BR>
(Address of principal executive offices)</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Securities registered or to be registered pursuant to Section&nbsp;12(b) of the Act.</DIV>

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    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Title of each class</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Name of each exchange on which registered</B></TD>
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    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">(1) Common Stock (the &#147;shares&#148;)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">New York Stock Exchange*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">(2) American Depositary Shares (&#147;ADSs&#148;), each of which represents one share
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">New York Stock Exchange</TD>
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<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Securities registered or to be registered pursuant to Section&nbsp;12(g) of the Act.</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">None<BR>
(Title of Class)</DIV>

<DIV align="center" style="font-size: 10pt">_________________________</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Securities for which there is a reporting obligation pursuant<BR>
to Section&nbsp;15(d) of the Act.<BR>
None<BR>
(Title of Class)</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">* Not for trading, but only for technical purposes in connection with the registration of ADSs.</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Indicate the number of outstanding shares of each of the issuer&#146;s classes<BR>
of capital or common stock as of the close of the period covered by the<BR>
annual report.</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">As of December&nbsp;31, 2005, 888,742,779 shares of common stock, including 49,384,651<BR>
ADSs, were outstanding.</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule&nbsp;405 of the Securities
Act.&nbsp;&nbsp;Yes&nbsp;<FONT face="Wingdings">&#254;</FONT>&nbsp;No&nbsp;<FONT face="Wingdings">&#111;</FONT></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
this report is an annual or transition report, indicate by check mark
if the registrant is not required to file reports pursuant to
Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934.&nbsp;Yes&nbsp;<FONT face="Wingdings">&#111;</FONT>&nbsp;No&nbsp;<FONT face="Wingdings">&#254;</FONT></DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Indicate by check mark whether the registrant (1)&nbsp;has filed all reports<BR>
required to be filed by Section&nbsp;13 or 15(d) of the Securities Exchange Act of<BR>
1934 during the preceding 12&nbsp;months (or for such shorter period that the<BR>
registrant was required to file such reports), and (2)&nbsp;has been subject to such<BR>
filing requirements for the past 90&nbsp;days.</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Yes&nbsp;&nbsp;<FONT face="Wingdings">&#254;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;&nbsp;<FONT face="Wingdings">&#111;</FONT></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of &#147;accelerated filer and large accelerated filer&#148; in Rule 12b-2 of the Exchange Act. (Check one):</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Large&nbsp;accelerated&nbsp;filer&nbsp;<FONT face="Wingdings">&#254;</FONT>&nbsp;Accelerated&nbsp;filer&nbsp;<FONT face="Wingdings">&#111;</FONT>&nbsp;Non-accelerated&nbsp;filer&nbsp;<FONT face="Wingdings">&#111;</FONT></DIV>



<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Indicate by check mark which financial statement item the registrant has<BR>
elected to follow.</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Item&nbsp;17&nbsp;&nbsp;<FONT face="Wingdings">&#254;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Item&nbsp;18&nbsp;&nbsp;<FONT face="Wingdings">&#111;</FONT></DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this is an annual report, indicate by check mark
whether the registrant is a shell company (as defined in Rule&nbsp;12b-2 of the Exchange
Act).&nbsp;Yes&nbsp;<FONT face="Wingdings">&#111;</FONT>&nbsp;No&nbsp;<FONT face="Wingdings">&#254;</FONT>
</DIV>


<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>





<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<A name="tocpage"></A>
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<DIV align="center" style="font-size: 10pt; margin-top: 18pt">TABLE OF CONTENTS
</DIV>

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    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Page number</TD>
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    <TD colspan="3" valign="top" align="left"><A href="#101">CERTAIN DEFINED TERMS, CONVENTIONS AND PRESENTATION OF FINANCIAL INFORMATION</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">1</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
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    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#102">FORWARD-LOOKING INFORMATION</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">1</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="7" valign="top" align="center"><A href="#103">PART I<BR></A></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#104">Item&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;Identity of Directors, Senior Management and Advisers</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">2</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#105">Item&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;Offer Statistics and Expected Timetable</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">2</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#106">Item&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;Key Information</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">2</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#107">A.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#107"> Selected financial data
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">2</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#108">B.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#108"> Capitalization and indebtedness
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">3</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#109">C.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#109"> Reasons for the offer and use of proceeds
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">3</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#110">D.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#110"> Risk factors
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">3</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#111">Item&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;Information on the Company</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">9</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#112">A.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#112"> History and development of the Company
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">9</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#113">B.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#113"> Business overview
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">10</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#114">Products
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">10</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#115">Marketing and distribution
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">13</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#116">Service
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">13</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#117">Net sales by product group and geographic area
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">14</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#118">Seasonality
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">15</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#119">Sources of supply
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">15</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#120">Competition
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">15</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#121">Patents and licenses
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">16</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#122">Environmental regulations
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">17</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#123">C.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#123"> Organizational structure
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">19</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#124">D.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#124"> Property, plants and equipment
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">20</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#125">Item&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;Operating and Financial Review and Prospects</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">23</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#126">A.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#126"> Operating results
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">23</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#127">Overview
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">23</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#128">Critical accounting policies and estimates</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">24</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#129">Consolidated result of operations
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">26</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:55px; text-indent:-15px"><A href="#130">Fiscal 2005 compared with fiscal 2004
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">26</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:55px; text-indent:-15px"><A href="#131">Fiscal 2004 compared with fiscal 2003
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">29</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:55px; text-indent:-15px"><A href="#132">Foreign operations and foreign currency transactions
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">34</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:55px; text-indent:-15px"><A href="#133">Recent developments
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">34</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#134">B.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#134"> Liquidity and capital resources
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">34</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#135">C.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#135"> Research and development, patents and licenses
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">35</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#136">D.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#136"> Trend information
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">36</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#137">Trend information
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">36</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#138">Forward looking statements
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">37</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#139">E.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#139"> Off-balance sheet arrangements
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">38</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#140">F.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#140"> Contractual obligations
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">38</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#141">Item&nbsp;6.&nbsp;&nbsp;&nbsp;&nbsp;Directors, Senior Management and Employees</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">39</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#142">A.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#142"> Directors and senior management
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">39</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#143">B.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#143"> Compensation
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">43</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#144">C.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#144"> Board practices
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">44</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#145">D.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#145"> Employees
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">44</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#146">E.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#146"> Share ownership
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">45</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#147">Item&nbsp;7.&nbsp;&nbsp;&nbsp;&nbsp;Major Shareholders and Related Party Transactions</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">46</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#148">A.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#148"> Major shareholders
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">46</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#149">B.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#149"> Related party transactions
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">46</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#150">C.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#150"> Interests of experts and counsel
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">46</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">i
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Page number</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#151">Item&nbsp;8.&nbsp;&nbsp;&nbsp;&nbsp;Financial Information</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">47</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#152">A.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#152"> Consolidated financial statements and other financial information
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">47</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#153">Consolidated financial statements
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">47</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#154">Legal proceedings
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">47</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#155">Dividend policy
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">47</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#156">B.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#156"> Significant changes
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">48</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#157">Item&nbsp;9.&nbsp;&nbsp;&nbsp;&nbsp;The Offer and Listing</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">48</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#158">A.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#158"> Offer and listing details
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">48</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#159">Trading in domestic markets
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">48</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#160">Trading in foreign markets
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">49</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#161">B.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#161"> Plan of distribution
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">49</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#162">C.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#162"> Markets
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">49</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#163">Item&nbsp;10.&nbsp;&nbsp;Additional Information</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">50</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#164">A.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#164"> Share capital
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">50</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#165">B.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#165"> Memorandum and articles of association
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">50</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#166">C.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#166"> Material contracts
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">54</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#167">D.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#167"> Exchange controls
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">54</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#168">E.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#168"> Taxation
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">55</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#169">F.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#169"> Dividends and paying agents
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">57</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#170">G.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#170"> Statement by experts
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">57</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#171">H.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#171"> Documents on display
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">57</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px"><A href="#172">I.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#172"> Subsidiary information
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">57</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#173">Item&nbsp;11.&nbsp;&nbsp;Quantitative and Qualitative Disclosures About Market Risk</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">57</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#174">Market risk exposures
</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">57</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#175">Equity price risk
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">58</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#176">Foreign
currency exchange rate and interest rate risk
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">58</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#177">Item&nbsp;12.&nbsp;&nbsp;Description of Securities Other than Equity Securities</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">59</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="7" valign="top" align="center"><A href="#178">PART II<BR></A></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#179">Item&nbsp;13.&nbsp;&nbsp;Defaults, Dividend Arrearages and Delinquencies</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">60</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#180">Item&nbsp;14.&nbsp;&nbsp;Material Modifications to the Rights of Security Holders and Use of Proceeds</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">60</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#181">Item&nbsp;15.&nbsp;&nbsp;Controls and Procedures</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">61</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#182">Item&nbsp;16A.&nbsp;&nbsp;Audit Committee Financial Expert</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">61</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#183">Item&nbsp;16B.&nbsp;&nbsp;Code of Ethics</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">61</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#184">Item&nbsp;16C.&nbsp;&nbsp;Principal Accountant Fees and Services</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">61</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#185">Item&nbsp;16D.&nbsp;&nbsp;Exemptions from the Listing Standards for Audit Committees</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">62</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#186">Item&nbsp;16E.&nbsp;&nbsp;Purchases of Equity Securities by the Issuer and Affiliated Purchasers</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">63</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="7" valign="top" align="center"><A href="#187">PART III<BR></A></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#188">Item&nbsp;17.&nbsp;&nbsp;Financial Statements</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">64</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#189">Reports of Independent Registered Public Accounting Firms
</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">65</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#190">Consolidated Balance Sheets
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">67</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#191">Consolidated Statements of Income
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">68</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#192">Consolidated Statements of Stockholders&#146; Equity
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">69</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#193">Consolidated Statements of Cash Flows
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">70</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#194">Notes to Consolidated Financial Statements
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">71</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#195">Valuation and Qualifying Accounts
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">114</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#196">Item&nbsp;18.&nbsp;&nbsp;Financial Statements</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">115</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#197">Item&nbsp;19.&nbsp;&nbsp;Financial Statements and Exhibits</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">115</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#198">SIGNATURES</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">116</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" align="left"><A href="#199">EXHIBIT INDEX</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="k01104exv1w1.htm">EX-1.1 ARTICLES OF INCORPORATION OF CANON INC.(TRANSLATION)</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="k01104exv12.htm">EX-12 302 CERTIFICATIONS</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="k01104exv13.htm">EX-13 906 CERTIFICATION</A></FONT></TD></TR>
</TABLE>
</DIV>
<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="center" style="font-size: 10pt">ii
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="101"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">CERTAIN DEFINED TERMS, CONVENTIONS AND PRESENTATION OF FINANCIAL INFORMATION
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">All information contained in this Annual Report is as of December&nbsp;31, 2005 unless otherwise
specified.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">References in this discussion to the &#147;Company&#148; are to Canon Inc. and, unless otherwise indicated,
references to the financial condition or operating results of &#147;Canon&#148; refer to Canon Inc. and its consolidated subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On March&nbsp;31, 2006, the noon buying rate for yen in New York City as reported by the Federal Reserve
Bank of New York was Yen117.48= U.S.$1.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company&#146;s fiscal year end is December&nbsp;31. In this Annual Report &#147;fiscal 2005&#148; refers to the
Company&#146;s fiscal year ended December&nbsp;31, 2005, and other fiscal years of the Company are referred to in a corresponding manner.
</DIV>

<DIV align="left">
<A name="102"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">FORWARD-LOOKING INFORMATION
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">This Annual Report contains forward-looking statements and information relating to Canon that are
based on beliefs of its management as well as
assumptions made by and information currently available to Canon Inc. When used in this Annual
Report, the words &#147;anticipate,&#148; &#147;believe,&#148; &#147;estimate,&#148;
&#147;expect,&#148; &#147;intend,&#148; &#147;may,&#148; &#147;plan,&#148; &#147;project&#148; and &#147;should&#148; and similar expressions, as they relate
to Canon or its management, are intended to
identify forward-looking statements. Such statements reflect the current views and assumptions of
the Company with respect to future events and are subject to
risks and uncertainties. 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&#146;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 Annual
Report. 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 as anticipated,
believed, estimated, expected, intended, planned or projected. Canon Inc. does not intend or assume
any obligation to update these forward-looking statements.
</DIV>


<P align="center" style="font-size: 10pt">1
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="103"></A>
</DIV>

<DIV align="center" style="font-size: 12pt; margin-top: 18pt"><B>PART I</B>
</DIV>

<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;1.&nbsp;&nbsp;&nbsp;Identity of Directors, Senior Management and Advisers</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;2.&nbsp;&nbsp;&nbsp;Offer Statistics and Expected Timetable</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;3.&nbsp;&nbsp;&nbsp;Key Information</B>
</DIV>

<DIV align="left">
<A name="107"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 1%">&nbsp;&nbsp;&nbsp;<B>A.&nbsp;&nbsp;&nbsp;Selected financial data</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following selected consolidated financial data has been derived from the consolidated
financial statements of Canon as of each of the dates and for each of the periods indicated below. This information should be read in conjunction with and
qualified in its entirety by reference to the Consolidated Financial Statements of Canon Inc. and subsidiaries, including the notes thereto, included in this
Annual Report. These financial statements have been audited by Ernst &#038; Young ShinNihon, Independent
Registered Public Accounting Firm as of and for the year ended December&nbsp;31, 2005 and 2004. The
financial statements for periods prior to the year ended December&nbsp;31, 2004 were audited by KPMG
AZSA &#038; Co., Independent Registered Public Accounting Firm.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Selected financial data *1:</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2001</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18"><B>(Millions of yen except average number of shares and per share data)</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="21">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,754,191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,467,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,198,072</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">2,940,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">2,907,573</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">583,043</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">543,793</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">454,424</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">346,359</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">281,839</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before cumulative effect of change
in accounting principle</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,096</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">343,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">275,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">190,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">163,869</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,096</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">343,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">275,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">190,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167,561</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Advertising expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,278</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,837</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and development expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">286,476</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">275,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">259,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">233,669</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">218,616</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation of property,
plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">205,727</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">174,397</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">168,636</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">158,469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">147,286</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">383,784</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">318,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">210,038</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">198,702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">207,674</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term debt,
excluding current installments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,082</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,651</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,260</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,349</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95,526</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">174,438</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173,864</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">168,892</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167,242</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165,287</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,604,682</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,209,896</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,865,545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,591,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,458,476</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,043,553</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,587,021</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,182,148</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,942,706</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,844,756</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average number of common shares in thousands</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">887,174</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">885,365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">878,649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">876,716</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">875,960</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Per share data:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before cumulative effect of change in accounting principle:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">432.94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">387.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">313.81</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">217.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">187.07</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">432.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">386.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">310.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">214.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184.55</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">432.94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">387.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">313.81</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">217.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">191.29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">432.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">386.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">310.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">214.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">188.70</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash dividends declared</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash dividends declared (U.S.$)*2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD align="right">0.870</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.601</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.464</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.196</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Notes:
</DIV>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The above financial data are prepared in accordance with U.S. generally accepted accounting
principles.</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Annual cash dividends declared (U.S.$) translated from yen based on a weighted average of
the noon buying rates for yen in New York city as reported by the Federal Reserve Bank of New York in effect on the date of each semiannual
dividend payment.</TD>
</TR>
</TABLE>

<P align="center" style="font-size: 10pt">2
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table provides the noon buying rates for Japanese yen in New York City as
reported by the Federal Reserve Bank of New York expressed in Japanese yen per U.S.$1 during the periods indicated and the high and low noon buying rates for
Japanese yen per U.S.$1 during the months indicated.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="58%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" colspan="2" style="border-bottom: 1px solid #000000"><B>Yen exchange rates per U.S. dollar:</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Term end</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD colspan="2" valign="top" align="left">2001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">122.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">131.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">114.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">131.47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="2" valign="top" align="left">2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">124.81</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">118.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115.71</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">134.77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD colspan="2" valign="top" align="left">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115.83</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">107.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">121.42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="2" valign="top" align="left">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">107.63</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102.68</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">114.30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">2005</TD>
    <TD><DIV style="margin-left:20px; text-indent:-15px"> - Year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110.74</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">120.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102.26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD><DIV style="margin-left:20px; text-indent:-15px"> - 1(st) half</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110.91</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110.91</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102.26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD><DIV style="margin-left:20px; text-indent:-15px"> - July</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110.47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD><DIV style="margin-left:20px; text-indent:-15px"> - August</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110.84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">109.37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD><DIV style="margin-left:20px; text-indent:-15px"> - September</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113.32</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">109.66</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD><DIV style="margin-left:20px; text-indent:-15px"> - October</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113.54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD><DIV style="margin-left:20px; text-indent:-15px"> - November</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">119.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">119.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116.63</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD><DIV style="margin-left:20px; text-indent:-15px"> - December</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">120.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115.78</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">2006</TD>
    <TD><DIV style="margin-left:20px; text-indent:-15px"> - January</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113.96</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD><DIV style="margin-left:20px; text-indent:-15px"> - February</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115.82</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">118.95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115.82</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD><DIV style="margin-left:20px; text-indent:-15px"> - March</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117.48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">119.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115.89</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>B.&nbsp;&nbsp;&nbsp;Capitalization and indebtedness</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>C.&nbsp;&nbsp;&nbsp;Reasons for the offer and use of proceeds</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>


<DIV align="left">
<A name="110"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>D.&nbsp;&nbsp;&nbsp;Risk Factors</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon is one of the world&#146;s leading manufacturers of plain paper copying machines, digital
multifunction devices, laser beam printers, bubble jet printers, cameras, steppers and aligners.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Primarily because of the nature of the business areas and geographical areas in which Canon
operates and the highly competitive nature of the industries to which it belongs, Canon is exposed
to a variety of risks and uncertainties in carrying out its businesses, including, but not limited
to, the following:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Risks Related to Canon&#146;s Industries</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Canon has invested and will continue to invest heavily in next-generation technologies. If the
market for these technologies does not develop as Canon expects or if its competitors produce these
or competing technologies in a more timely or effective manner, Canon&#146;s operating results could be
materially adversely affected.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon has made and will continue to make investments in next-generation technology research
and development initiatives. Canon&#146;s competitors may achieve research and development breakthroughs
in these technologies more quickly than Canon, or may achieve advances in competing technologies
that render products under development by Canon uncompetitive. In step with the continuous
evolution in technologies, Canon has increased the size of its investment in development and
manufacturing. If Canon&#146;s business strategies diverge from market needs, Canon may not recover some
or all of its investment, lose business opportunities, or both, which may materially adversely
affect Canon&#146;s operating results. While differentiation in technology and product development is an
important part of Canon&#146;s strategy, Canon must also accurately assess the demand for and perceived
market acceptance of new technologies and products that it develops. If Canon pursues technologies
or develops products that do not become commercially accepted, its operating results could be
adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It is assumed that Canon will enter into the new business field by having next-generation
technology as Canon&#146;s corporate strategy. However, even if Canon enters into new field of business, there are risks that Canon may not establish a business model or may get involved in competition
with new competitors. If such risks arise, Canon&#146;s operating results will be adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>If Canon does not effectively manage transitions in its products and services, its operating
results may decline.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many of the businesses in which Canon competes are characterized by rapid technological
advances in hardware performance, software functionality and product features, the frequent
introduction of new products, short product life cycles, and continual improvement in product price
characteristics relative to product performance. If Canon does not make an effective transition
from existing products and services to new offerings, its revenue and profits may decline. Among
the risks associated with the introduction of new products and services are delays in development
or manufacturing, low product marketability due to poor product quality, variations in
manufacturing costs, delays in customer purchases in anticipation of new introductions, difficulty
in predicting customer demand for new product offerings and difficulty in effective management of
inventory levels in line with anticipated demand. Canon&#146;s revenue and gross margin also may suffer
due to the timing of product or service introductions by its competitors. This risk is exacerbated
when a product has a short life cycle or a competitor introduces a new product just before Canon&#146;s
introduction of a similar product. Furthermore, sales of Canon&#146;s new products and services may
replace sales of, or result in discounting of, some of its current product offerings, sometimes
offsetting the benefits derived from the introduction of a successful new product or service. Canon
must also ensure that its new products are not duplicative or do not overlap with existing products
and operations. Given the competitive nature of Canon&#146;s businesses, if any of these risks
materialize, future demand for its products and services will be reduced and its results of
operations may decline.
</DIV>

<P align="center" style="font-size: 10pt">3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Canon&#146;s businesses, especially the digital multifunction device and camera businesses in which
Canon operates, is highly competitive.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The recent trend of rapid digitalization has resulted in the entry of new competitors, such as
electronics manufacturers and other specialized companies which were not active during the analog
camera era. If the digital camera industry develops more rapidly than at the pace that Canon
anticipates, Canon may not be able to maintain its position as an industry leader in many of its
business categories. Although Canon believes that it has successfully kept pace with this trend
toward digitalization, its survival in this increasingly competitive environment will depend on our
investments in research and development, ability to cut costs and commitment to continuously
providing the market with attractive products offering high added-value.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the unexpected emergence of strong competitors through mergers and acquisitions
or the formation of business alliances may change the competitive environment of the businesses in
which Canon engages, thereby affecting Canon&#146;s future results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Because the semiconductor industry is highly cyclical, Canon may be adversely affected by any
downturn in the industry.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The semiconductor industry is characterized by up and down business cycles, the timing, length
and volatility of which are difficult to predict. Recurring periods of oversupply of integrated
circuits have at times led to significantly reduced demand for capital equipment, including the
steppers and aligners Canon produces. Despite this cyclicality, Canon must maintain significant
levels of research and development expenditures in order to maintain its competitive position.
Canon&#146;s business and operating results could be materially adversely affected by future downturns
in the semiconductor industry and related fluctuations in the demand for capital equipment in
general, and particularly by memory manufacturers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, liquid crystal display ( &#147;LCD&#148;) panel manufacturers are facing severe
price-reduction of LCD panels as a result of intense competition of LCD televisions and LCD
monitors used in PCs. As a result, panel manufacturers may reduce equipment investment, which may
adversely affect Canon&#146;s business operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Downturns in the semiconductor industry have caused Canon&#146;s customers to change their
operational strategies, which in turn may affect Canon&#146;s business.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many device manufacturers have changed their business models to focus on the design of
semiconductors, while consigning the production of semiconductors to lower-cost foundries. Canon
cannot accurately predict the future effect of these trends on its business. However, as research
and development, manufacturing and sales activities become increasingly globalized in response to
these trends, shifting particularly to emerging markets, unexpected global developments, such as
adverse regulatory or legal changes and unanticipated events, such as natural disasters, may
adversely affect Canon&#146;s business operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, there are only approximately ten companies in the world which produces
large-sized LCD panels in the world. If Canon cannot keep up with the market trend of LCD panel
industries, including market reorganization, Canon may not be able to maintain its customer which
may materially adversely affect Canon&#146;s business operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>The semiconductor equipment industry is characterized by rapid technological change. If Canon
does not constantly develop new products to keep pace with technological change and meet its
customers requirements, Canon may lose customers and its business may suffer.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s steppers and mask aligners are affected by rapid technological change and can quickly
become obsolete. Canon believes its future success in the steppers and aligners business depends on its ability to continue to enhance its existing products
and develop new products using new and more advanced technologies. In particular, as semiconductor
pattern sizes continue to decrease, the demand for more technologically advanced steppers is likely
to increase. Although Canon will continue to offer cost effective products by managing
manufacturing costs through its technology, Canon&#146;s existing stepper and mask aligner products
could become obsolete sooner than anticipated because of faster than anticipated changes in one or
more of the technologies related to Canon&#146;s products or in the market demand for products based on
a particular technology. Any failure by Canon to develop the advanced technologies required by its
customers at progressively lower costs and to supply sufficient quantities to a worldwide customer
base could adversely affect Canon&#146;s net sales and profitability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Growing diversification in recording media may adversely affect Canon&#146;s video camcorder
business.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of the overall digitization of the consumer electronics market, the video camera
market is successfully moving toward digitalization. At the same time, in the market that was once
dominated by MiniDV standard, new digital standards, such as DVD (Digital Versatile Drive), HDD
(Hard Disk Drive), SD (Secure Digital) memory card and high-resolution recording format such as
HDV, have appeared. If these competing standards gain wide acceptance in the market, sales of
Canon&#146;s products using mainly the MiniDV standard may decline.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, Canon may be required to incur significant research and development expenditures
to develop new products that are compatible with such new standards. Such trends may have an
adverse affect on Canon&#146;s video camcorder business as well as its operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Risks Related to Canon&#146;s Business</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Canon derives a significant percentage of its revenues from Hewlett-Packard.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon depends on Hewlett-Packard for a significant part of its business. For fiscal 2005,
approximately 21% of Canon&#146;s net sales were to Hewlett-Packard. As a result, its business and
results of operations may be affected by the policies, business and results of operations of
Hewlett-Packard. Any decision by Hewlett-Packard management to limit or reduce the scope of its
relationship with Canon would adversely affect Canon&#146;s business and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Canon depends on a limited number of suppliers for certain key components.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon relies on a limited number of outside vendors which meet Canon&#146;s strict criteria for
quality, efficiency and environmental friendliness for certain critical components used in its
products. In some cases, Canon may be forced to discontinue its production of some or all of its
products if certain vendors that supply key parts across Canon&#146;s product lines experience
unforeseen difficulties, or if such parts experience quality problems or are in short supply.
Canon&#146;s reliance on a limited number of suppliers involves several risks, including a potential
inability to obtain an adequate supply of required components, the risk of untimely delivery of
these subassemblies and components and the risk for a substantial increase in price of these
components to occur. If such risks arise, Canon&#146;s operating results will be adversely affected.
</DIV>

<P align="center" style="font-size: 10pt">4
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Although competition is increasing in the market for sales of supplies and services following
initial product placement, Canon maintains a s high market share in sales of such supplies. As a
result, Canon may be subject to antitrust-related suits, investigations or proceedings which may
adversely affect its operating results or reputation.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A portion of Canon&#146;s net sales consists of sales of supplies and the provision of services
occurring after the initial equipment placement. As these supplies and services have become more
commoditized, the number of competitors in these markets has increased. Canon&#146;s success in
maintaining these post-placement sales will depend on its ability to compete successfully with
these competitors, some of which may offer lower-priced products or services. Despite the increase
in competitors as described above, Canon currently possesses a high market share in the market for
supplies. Accordingly, Canon may be subject to suits, investigations or proceedings under relevant
antitrust laws and regulations. Any such suits, investigations or proceedings may lead to
substantial costs and have an adverse effect on Canon&#146;s operating results or reputation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Recent increases in counterfeit Canon products may adversely affect Canon&#146;s brand image and
its operating results.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In recent years, Canon has experienced a worldwide increase in the emergence of counterfeit
Canon products. Such counterfeit products may diminish Canon&#146;s brand image, particularly if
purchasers of such products are unaware of their counterfeit status and attribute the counterfeit
products&#146; poor product quality to Canon. Canon has been taking measures to halt the spread of
counterfeit products. However, there is no assurance that such measures will be successful, and the
continued production and sale of such products could negatively affect Canon&#146;s brand image as well
as its operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Per unit production costs are highest when a new product is introduced, and if such
new products are not successful or if Canon fails to achieve cost reductions over time, Canon&#146;s
gross profits may be adversely affected.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The unit cost of Canon&#146;s products has historically been the highest when they are newly
introduced into production and have at times had a negative impact on its gross profit, operating
results and cash flow. Cost reductions and enhancements typically come over time through:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>engineering improvements;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>economies of scale;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>improvements in manufacturing processes; and</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>improved serviceability of products.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Initial shipments of Canon&#146;s new products adversely affect its profit or cash flow, and if
sales of such new products are not successful, Canon may be unable thereafter to improve its gross
profit, operating results and cash flow.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Cyclical patterns in sales of Canon&#146;s products make planning and inventory management
difficult and future financial results less predictable.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon generally experiences seasonal trends in the sale of its consumer- oriented products,
which results in sales fluctuations. Accordingly, it is difficult to predict near-term demand which
as a result places pressure on Canon&#146;s inventory management and logistics systems. If predicted
demand is substantially greater than actual orders, there will be excess inventory, thereby putting
downward pressure on selling prices and reducing Canon&#146;s revenue. Alternatively, if orders
substantially exceed predicted demand, Canon&#146;s ability to fulfill orders may be limited, which
could adversely affect net sales and increase the risk of unanticipated variations in its results
of operation. Many of the factors that create and affect seasonal trends are beyond Canon&#146;s
control.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Canon&#146;s business may be subject to changes in sales environment.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In certain geographic areas, particularly in Europe and the United States, a substantial
portion of market share is concentrated in a relatively small number of large distributors. Canon&#146;s
sales of products to these distributors constitute a significant percentage of Canon&#146;s overall
sales. As a result, any disruptions in its relationships with these large distributors in a
specific sales territory could adversely affect Canon&#146;s ability to meet its sales targets. Any
increase in the level of market share concentrated in these large distributors could result in
Canon losing its pricing power and adversely affect its profits. In addition, the rapid
proliferation of Internet-based businesses may render conventional distribution channels obsolete.
These and other changes in Canon&#146;s sales environment could adversely affect Canon&#146;s results of
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Canon is subject to financial and reputational risks due to product quality and liability
issues.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although Canon has been working to minimize risks that may arise from product quality and
liability issues, there can be no assurance that Canon will be able to eliminate or mitigate
occurrences of these issues and consequent damages. If such factors adversely affect Canon&#146;s
operating activities, generate expenses such as those for product recalls, service and
compensation, or hurt its brand image, its operating results or reputation for quality products
may be adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Canon&#146;s success depends on the value of its brand name, and if the value of the brand name
were to diminish, operating results and prospects would be adversely affected.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s success in its markets depends in part on Canon&#146;s brand name and its value. In
addition, as a manufacturer and distributor of consumer products, Canon&#146;s operating results are
susceptible to adverse publicity regarding the quality of its products. There can be no assurance
that such adverse publicity will not occur or that such claims will not be made in the future.
Furthermore, Canon cannot predict the impact of such adverse publicity on its business and results
of operations.
</DIV>

<P align="center" style="font-size: 10pt">5
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>A substantial portion of Canon&#146;s business activity is conducted outside Japan, exposing Canon
to the risks of international operations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A substantial portion of Canon&#146;s business activity is conducted outside Japan, including in
developing and emerging markets in Asia. There are a number of risks inherent in doing business in
those markets, including the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>less developed technological infrastructure, which can affect production or other activities or result in lower customer acceptance of Canon&#146;s services;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>difficulties in recruiting and retaining personnel;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>potentially adverse tax consequences;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>longer payment cycles;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>unfavorable political or economic factors; and</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>unexpected legal or regulatory changes.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s inability to manage successfully the risks inherent in its international activities
could adversely affect its business and operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to produce Canon&#146;s products competitively and to reduce costs, Canon has established
new production facilities in China. Canon has more than ten sales office which support its sales
activity in China. However, with China&#146;s entry into the WTO, conditions within China are continuing
to change. For example, unexpected events, including political or legal change, labor shortage or
strikes, increased personnel costs or changes in economic conditions, may occur. In
particular, a large revaluation of the yuan, or a sudden change in the tax system or other
regulatory regimes of a significant magnitude could adversely affect Canon&#146;s overall performance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the spread of an epidemic disease, such as severe acute respiratory syndrome
(SARS)&nbsp;or the avian flu, in China or elsewhere in Asia could have a negative effect on Canon&#146;s
business activity. Canon has previously imposed travel restrictions to and from, certain countries
affected by SARS, and similar medical crises in the future may disrupt manufacturing processes and
markets for Canon&#146;s products. Given the importance of Canon&#146;s Asian sales, production facilities
and supply relationships, especially in China, Canon&#146;s business may be more exposed to this risk
than the global economy generally.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon may unintentionally infringe international trade laws and regulations, and any such
infringement may lead to an adverse effect on its business. The extent of the effect on Canon&#146;s
business will depend upon the nature of the infringement and the severity of fines or other
sanctions that might be imposed upon Canon. A major infringement could result in the temporary
suspension of Canon&#146;s trading rights in one or more jurisdictions. In addition to any sanctions
prescribed by law, adverse publicity regarding an alleged infringement of trade laws and
regulations by Canon may also have a negative effect on the Canon brand and image.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of the above factors regarding international operations could have an adverse impact on
Canon&#146;s business results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Canon depends on efficient logistics services to distribute its products worldwide.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon depends on efficient logistics services to distribute its products worldwide. If
problems arise with Canon&#146;s computerized logistics system, or regional disputes or labor disputes,
such as a dockworker&#146;s strike, occur, it could lead to a disruption of Canon&#146;s operations and
result not only in increased logistical costs, but also in a loss of sales opportunities due to
delays in delivery. Also, because demand for Canon&#146;s consumer products can fluctuate throughout the
year, the failure to adjust bookings for vessels and the preparation of warehouse space to reflect
such fluctuations could result in either the loss of sales opportunities or the increase of
unnecessary costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the increasingly higher levels of precision required of semiconductor production
equipment like steppers or mask aligners and the resulting increase in the value of this equipment
in recent years have resulted in a concurrent increase in the need for sensitive handling and
transportation of these products. Due to their precision nature, even a very trivial shock to these
products during the handling and transportation process could result in loss on the entire product.
If unforeseen accidents during the handling and transportation process render a significant portion
of Canon&#146;s higher-end precision products unmarketable, Canon may not be able to fully recover its
investment in the research, development and production of these precision products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The rise in crude oil prices has become a recurring event, due primarily to the inflow of
speculative funds into the global markets and the increasing consumption in China. As a result of
this rise in oil prices, the cost of airfreight has increased in the form of a fuel surcharge. Such
changes in the sales environment in which Canon operates could adversely affect Canon&#146;s results of
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon is engaging in the reduction of carbon dioxide emissions by implementing such measures
as a new transportation system, including an efficient new rail container system. A failure by
Canon to meet its targets may have a negative effect on Canon&#146;s brand and image and its business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Economic trends in Canon&#146;s major markets may adversely affect its results of operations net
sales.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Economic downturns and declines in consumption in Canon&#146;s major markets, including Japan, the
United States and Europe, may affect the levels of both corporate and consumer sales. Purchases of
Canon&#146;s consumer products, such as cameras and printers, are to a very significant degree
discretionary. A decline in the level of consumption caused by the weakening of general economic
conditions could adversely affect Canon&#146;s results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s operating results are also affected by the level of business activity of its
customers, which in turn is affected by the level of economic activity in the industries and
markets that they serve. A decline in the level of business activity of Canon&#146;s customers caused by
the weakening of the global economy could adversely affect Canon&#146;s results of operations.
</DIV>

<P align="center" style="font-size: 10pt">6
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Risks Related to Environmental Issues</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Canon&#146;s business is subject to environmental laws and regulations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon is subject to certain Japanese and foreign environmental requirements in areas such as
energy resource conservation, reduction of hazardous substances, collection and recycling of
products, clean air, water protection and waste disposal. Canon believes that it has taken adequate
precautions to comply with these regulations in the course of its ordinary business operations.
Furthermore, Canon does not believe that any environmental laws or regulations currently in effect
will have a material adverse effect on its operating results. However, Canon cannot predict whether
any pending or future legislation will be adopted or what effect such legislation would have on it.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In some cases, mainly in the European Union, such as with the Directive on the Restriction of
the Use of Certain Hazardous Substances in Electrical and Electronic Equipment or the Directive
establishing a framework for the setting of EcoDesign requirements for Energy-using Products,
detailed implementation standards have not yet been determined. Canon intends to implement such
standards as they are determined and adopted. If Canon&#146;s measures do not meet such
standards when they are adopted, however, Canon may be required to take further action and incur
additional costs to comply with these regulations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Environmental clean-up and remediation costs relating to Canon&#146;s properties and associated
litigation could decrease Canon&#146;s net cash flow, adversely affect its results of operations and
impair its financial condition.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon is subject to liability for the investigation and clean-up of environmental
contamination at each of the properties that it owns or operates, at certain properties Canon
formerly owned or operated and at off-site locations where Canon arranged for the disposal of
hazardous substances. If Canon were to be held responsible for damages in any future litigation or
proceedings, such costs may not be covered by insurance and may be material.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, Canon may face liability for alleged personal injury or property damage due to
exposure to chemicals or other hazardous substances at or from its facilities. Canon may also face
liability for personal injury, property damage, natural resource damage or for clean-up costs for
the alleged migration of contamination or other hazardous substances from its facilities. A
significant increase in the number or success of these claims and costs could adversely affect
Canon&#146;s results of operations or financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Risks Related to Intellectual Property</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Canon may be subject to intellectual property litigation and infringement claims, which could
cause it to incur significant expenses or prevent it from selling its products.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because of the emphasis on product innovation in the markets for Canon&#146;s products, many of
which are subject to frequent technological innovations, patents and other intellectual property
are an important competitive factor. Canon relies primarily on technology it has developed, and
Canon seeks to protect such technology through a combination of patents, trademarks and other
intellectual property rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon faces the risks that:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>competitors will be able to develop similar technology independently;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Canon&#146;s pending patent applications may not be issued;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the steps Canon takes to prevent misappropriation or infringement of its intellectual property may not be successful; and</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>intellectual property laws may not adequately protect Canon&#146;s intellectual property, particularly in some emerging markets.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In case Canon is not aware of actual or potential infringement of, or adverse claim to, its
rights in such technologies, any interference in Canon&#146;s rights to use such technologies could
adversely affect its operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, Canon may need to litigate in order to enforce its patents, copyrights or other
intellectual property rights, to protect its trade secrets, to determine the validity and scope of
the proprietary rights of others or to defend against claims of infringement, which can be
expensive and time-consuming. In the event any government agency or third party were adjudicated to
have a valid claim against Canon, Canon could be required to:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>refrain from selling the affected product in certain markets;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>make royalty payments or pay monetary damages;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>seek to develop non-infringing technologies, which may not be feasible; or</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>seek to acquire licenses to the infringed technology, which may not be available on commercially reasonable terms, if at all.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon also licenses its patents to third parties in exchange for payment or cross-licensing.
The terms and conditions of such licensing or changes in the conditions for renewals of such
licenses could affect Canon&#146;s business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s businesses, company image and result of operations could be adversely affected by any
of these developments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Disputes involving payment of remuneration for employee inventions may materially affect
Canon&#146;s brand image as well as its business.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon may face disputes involving payment of remuneration given to employee inventions for
which the rights have been succeeded by Canon. This risk is particularly relevant in countries such
as Japan and Germany, where patent laws require companies to pay remuneration to employees for the
succession of the employee&#146;s invention to the company. Canon maintains company rules on and an
evaluation system for employee inventions. Canon believes it has been making adequate payments to
employees for assignment of inventions based on these rules and a fair and objective succession of
amounts to be paid. There can be no assurance, however, that disputes will not arise with respect
to the amount of payments to employees.
</DIV>

<P align="center" style="font-size: 10pt">7
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Other Risks</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Canon depends on the attraction and retention of highly qualified professionals.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s future operating results depend in significant part upon the continued contributions
of its employees. In addition, Canon&#146;s future operating results depend in part on its ability to
attract, train and retain other qualified personnel in development, production, sales and
management for Canon&#146;s operations. The competition for these human resources in the high-tech
industries in which Canon competes has been increasingly intense in recent years. Moreover, due to
the accelerating pace of technological change, the importance of training new personnel in a timely
manner to meet product research and development requirements will increase. A failure by Canon to
recruit and train qualified personnel or the loss of key employees could adversely affect Canon&#146;s
business, and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Maintaining a high level of expertise in Canon&#146;s manufacturing technology is critical to
Cannon&#146;s business. However, it is difficult to secure the expertise required for a special skills
area, such as lens processing, in a short time period. While Canon is currently undertaking a
series of planning in order to obtain the expertise needed for each skills area, Canon cannot
guarantee that such expertise will be acquired in a timely manner and retained, which may adversely
affect Canon&#146;s business and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Canon&#146;s physical facilities, information systems and information security systems are
subject to damage as a result of disasters, outages or similar events.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s headquarters functions, its information systems and its research and development
centers are located in or near Tokyo, Japan, where the possibility of disaster or damage from
earthquakes is generally higher than in other parts of the world. In addition, Canon&#146;s facilities
or offices, including those for research and development, material procurement, manufacturing,
logistics, sales, and services are located throughout the world and subject to the possibility of
disaster or outage or similar disruption as a result of any of a number of events, including
natural disasters, computer viruses and terrorist attacks. Although Canon is working to establish
appropriate backup structures for its facilities and information systems, there is no assurance
that Canon will be able to completely prevent or mitigate the effect of events or developments such
as the aforementioned disasters, leakage of harmful substances, shutdowns of information systems,
and leakage, falsification, and disappearances of internal databases. Although Canon has
implemented backup plans to permit the production of products at multiple production facilities,
such plans do not cover all product models. In addition, such backup arrangements may not be
adequate to maintain production quantity levels. Such factors may adversely affect Canon&#146;s
operating activities, generate expenses relating to physical or personal damage, or hurt Canon&#146;s
brand image, and its operating results may be adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Canon&#146;s operating and financing activities expose Canon to foreign currency exchange and
interest rate risks that may adversely affect its revenues and profitability.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon is exposed to the risks of foreign currency exchange rate fluctuations. Canon&#146;s
consolidated financial statements, which are presented in Japanese yen, are affected by foreign
exchange rate fluctuations. These fluctuations can affect the yen value of Canon&#146;s equity
investments denominated in foreign currencies and monetary assets and liabilities arising from
business transactions in foreign currencies. They can also affect the costs and sales proceeds of
products that are denominated in foreign currencies. In addition, as a result of translating
foreign currency financial statements of Canon&#146;s foreign subsidiaries into Japanese yen, its
reporting currency, assets and liabilities, and revenues and expenses will fluctuate. Canon is also
exposed to risk of interest rate fluctuations, which may affect the value of Canon&#146;s financial
assets and liabilities, in particular, long-term debt.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>The cooperation and alliances with, and strategic investments in, third parties undertaken by
Canon may not produce successful results.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon carries out many activities with other companies in the form of alliances, joint
ventures, and strategic investments. These activities are important for Canon&#146;s technological
development process. However, weak business trends or disappointing performance by partners may
adversely affect the success of these activities. In addition, the success of these activities may
be adversely affected by the inability of Canon and its partners to successfully define and reach
common objectives. An unexpected cancellation of a major business alliance may disrupt Canon&#146;s
overall business plans and may also result in a delayed return-on-investment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Canon can be adversely affected by fluctuations in the stock and bond markets.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s assets include investments in publicly traded securities. As a result, Canon&#146;s
operating results and general financial position may be affected by fluctuations in the stock and
bond markets. In addition, if valuations of investment assets decrease due to conditions in, for
example, stock or bond markets, additional funding and accruals with respect to Canon&#146;s pension and
other obligations may be required, and such funding and accruals may adversely affect Canon&#146;s
operating results and consolidated financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Confidential information may be inadvertently disclosed which could lead to damage claims or
harm Canon&#146;s reputation, and may have an adverse effect upon Canon&#146; s business.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with certain projects, Canon may receive confidential or sensitive information
(such as personal information) from its customers relating to these customers or to other parties. In addition, Canon uses computer systems and electronic
data in managing information relating to its employees. Although Canon makes every effort to keep
this information confidential through company procedures designed to prevent accidental release of
confidential or sensitive information, such information may be inadvertently disclosed without
Canon&#146;s knowledge. If this occurs, Canon may be subject to claims for damages from the parties or
the employees affected, suffer harm to its reputation or be subject to liabilities and/or penalties
under applicable statutes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inadvertent disclosure of secret information regarding new technology, as well as market and
customer information, would also have a material adverse effect upon Canon&#146;s business.
</DIV>


<P align="center" style="font-size: 10pt">8
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;4.</B>&nbsp;&nbsp;&nbsp;<B>Information on the Company</B>
</DIV>

<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>A.</B>&nbsp;&nbsp;&nbsp;<B>History and development of the Company</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon Inc. is a joint stock corporation (kabushiki kaisha) formed under the Japanese
Commercial Code. Its principal place of business is at 30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo
146-8501, Japan. The telephone number is &#043;81-3-3758-2111.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company was incorporated under the laws of Japan on August&nbsp;10, 1937 to produce and sell
Japan&#146;s first focal plane shutter 35mm still camera, which was developed by its predecessor
company, Precision Optical Research Laboratories, which was organized in 1933.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the late 1950s, Canon entered the business machines field utilizing technology obtained
through the development of photographic and optical products. With the successful introduction of electronic calculators in 1964, Canon continued to
expand its operations to include plain paper copying machines, faxes, laser beam printers, bubble jet printers, computers, video camcorders and digital
cameras.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following are important events in the development of Canon&#146;s business in recent years.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In 2000, the Canon Inc. Optics R&#038;D Center, a research and development, or R&#038;D facility
for optical technology, was established in Tochigi, Japan.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In 2000, Canon Inc. changed the listing of its American Depository Receipts (ADRs) to
the New York Stock Exchange (NYSE)&nbsp;from the Nasdaq National Markets.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In 2001, Canon Vietnam Co., Ltd. was established in Hanoi, Vietnam as a production site
for bubble jet printers.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In 2001, Canon Zhongshan Business Machines Co., Ltd. was established in Zhongshan, China
as a production site for laser beam printers.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In 2001, Canon (Suzhou) Inc. was established in Suzhou, China as a production site for
digital copying machines and digital multifunction devices.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In January&nbsp;2003, Canon Aptex Inc. and Copyer Co., Ltd., two of Canon Inc.&#146;s
manufacturing subsidiaries in Japan, merged to become Canon Finetech Inc. The merger was
conducted with the aim of concentrating and further strengthening the core competencies of
the two merged companies in office equipment-related technologies.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In April&nbsp;2003, Fukushima Canon Inc. was established as a wholly-owned subsidiary through
the spin-off of Fukushima Plant, with the aim of establishing a high value-added
manufacturing company equipped with product-launching capability.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In April&nbsp;2003, Canon N.T.C.&#146;s marketing operations were spun off and merged with
Canon System &#038; Support Inc., and its real estate operations were spun off into Canon
Facility Management, Inc. Following the corporate spin-offs, Canon N.T.C.&#146;s operations
focuses on development and manufacturing.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In January, 2004, Canon Precision Inc., or Canon Precision, a wholly-owned subsidiary
of Canon Inc., merged with Hirosaki Precision, Inc., or Hirosaki Precision, a wholly-owned
subsidiary of Canon Precision. Hirosaki Precision was merged into Canon Precision, the
surviving company. Canon Precision targets the improved efficiency and specialization of
business operations. Since both Canon Precision and Hirosaki Precision were consolidated
subsidiaries of Canon Inc., the merger has no impact on Canon&#146;s current or future business
results.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On October&nbsp;15, 2004, the Company entered into an agreement with Canon Sales Co., Inc. and
Canotec Co., Inc., or Canotec, joint equity shareholders of Niigata Canotec Co., Inc., or
Niigata Canotec, to acquire all outstanding shares of Niigata Canotec. Therefore, on
January&nbsp;1, 2005, Niigata Canotec became a wholly-owned subsidiary of the Company and
changed its name to Canon Imaging System Technologies Inc. By making Canon Imaging System
Technologies, Inc. a wholly-owned subsidiary of the Company, Canon aims to raise the level
of its technical capacity and improve development efficiency by enabling closer
coordination.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On January&nbsp;1, 2005, Canotec and FastNet, Inc. merged, and the merged entity changed
its name to Canon Network Communications, Inc. The purpose of the merger was to increase
management efficiency by consolidating the Canon Group&#146;s network and Internet service
operations. Canon Network Communications, Inc. aims to strengthen Information Technology
Management Services, dealing with all stages from the establishment of comprehensive
network systems to their operation and management.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On September&nbsp;30, 2005, Canon acquired all of the issued and outstanding shares of
ANELVA Corporation, which possesses advanced vacuum technology, and made it into a
subsidiary. ANELVA Corporation&#146;s corporate name was changed to Canon ANELVA Corporation as
of October&nbsp;1, 2005. By making Canon ANELVA Corporation a subsidiary of the Company, Canon
aims to promote the in-house production of manufacturing equipment which is indispensable
to differentiate Canon products from the competitions in various fields, including Canon&#146;s
new display business.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On October&nbsp;19, 2005, Canon acquired the share of NEC Machinery Corporation (listed on
the Second Section of the Osaka Securities Exchange Co.,Ltd.), which possesses advanced
automation technologies, through tender offer and made it into a subsidiary. NEC Machinery
Corporation&#146;s corporate name was changed to Canon Machinery Inc. as of December&nbsp;17, 2005.
By making Canon Machinery Inc. a subsidiary of the Company, Canon aims to make further
advance in its production reform activities, including the automation of production
processes for Canon products.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In fiscal 2005, 2004 and 2003, Canon&#146;s capital expenditures were Yen 383,784&nbsp;million, Yen
318,730&nbsp;million and Yen 210,038&nbsp;million, respectively. In fiscal 2005, capital expenditures were
mainly used to expand production capabilities in both domestic and overseas regions, and to bolster
the Company&#146;s R&#038;D-related infrastructure. In addition, Canon has been continually investing in tools and
dies for business machines, in which the amount invested is generally the same each year.
</DIV>

<P align="center" style="font-size: 10pt">9
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For fiscal 2006, Canon projects its capital expenditures will be approximately Yen 465,000
million. This amount is expected to be spent for investments in new production plants and new
facilities of Canon. Canon anticipates that the funds needed for these capital expenditures will be
generated internally through operations.
</DIV>
<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>B.</B>&nbsp;&nbsp;&nbsp;<B>Business overview</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon is one of the world&#146;s leading manufacturers of plain paper copying machines, digital
multifunction devices, or MFDs, laser beam printers, bubble jet printers, cameras and steppers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon sells its products principally under the Canon brand name and through sales
subsidiaries. Each of these subsidiaries is responsible for marketing and distribution to retail
dealers in an assigned territory. Approximately 74% of consolidated net sales in fiscal 2005 were
generated outside Japan; approximately 30% in the Americas, 32% in Europe and 12% in other areas
including Asia.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s strategy is to develop innovative, high value-added products which incorporate
advanced technologies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s research and development activities range from basic research to product-oriented
research directed at keeping and increasing the technological leadership of Canon&#146;s products in the
market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon manufactures the majority of its products in Japan, but in an effort to reduce currency
exchange risks and production cost, Canon has increased overseas production and the use of local
parts. Canon has manufacturing subsidiaries in countries and regions such as the United States,
Germany, France, Taiwan, China, Malaysia, Thailand and Vietnam.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a concerned member of the world community, Canon emphasizes recycling, and has increased
its use of clean energy sources and cleaner manufacturing processes. Canon has also adopted
programs to collect and recycle used cartridges and to refurbish used copy machines. In addition,
Canon has virtually removed all environmentally unfriendly chemicals from its manufacturing
processes.
</DIV>
<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Products</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s products are divided into the following three product groups: business machines,
cameras, and optical and other products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">-<I>Business machines -</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The business machines product group is divided into three sub-groups consisting of office
imaging products, computer peripherals and business information products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Office imaging products</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon manufactures, markets and services a wide range of office network digital MFDs, color
network digital MFD&#146;s, office copying machines, personal-use copying machines and full-color
copying machines.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The office-use market is subject to rapid change, and customer preferences have been shifting
from copying machines to digital MFDs, as well as from monochrome to color products. To respond to
these trends, Canon has been strengthening its lineup of digital MFDs in the imageRUNNER (iR)
series, which have versatile functions, such as copying, printing, scanning, faxing and
data-sharing functions on the Internet and intranets. Canon is also marketing diverse expansion
modules, software and business solutions to increase customer value. For the development of MFDs,
Canon makes effective use of a wide range of technologies from the fields of optics, mechatronics,
electrophotography, chemistry and image processing. Canon has developed the high-performance image
processing chip the &#147;New color iR controller&#148; and the expandable, functional platform &#147;MEAP&#148; The
controller provides easy integration with customers&#146; IT environments together with speedy,
high-quality image processing. This boosts office productivity, thereby garnering acclaim from
business customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005, Sales of color office imaging products continued to grow rapidly as the office color
market expanded and sales of monochrome digital devices were stable. Canon has expanded its color
office imaging products lineups by introducing the iRC3170/2570 and iRC3220/2620 series worldwide
to further increase color MFD sales. Canon has also introduced new monochrome MFD models to
strengthen its industry leading monochrome MFD product lineup.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon has a powerful line of full-color copying machines and color digital MFDs for users
ranging from professional graphic designers to business offices. The trend in printing industry is
gradually moving away from large-lot printing using expensive machinery to small-lot printing on
demand and personalized printing. Canon&#146;s high-end MFDs and color digital MFDs can be applied to
the print on demand market. In addition, Canon aims to respond to the growing demand for color
imaging for business needs with products using its renowned S Toner, featuring spherical particles
and a microscopic wax-based structure, and its oil-less fixing system.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon has a leading market share in monochrome MFDs and copying machines including machines
for personal use. While the color shift is in progress, especially in Japan, the demand for
monochrome machines is stable accompanying with the expansion of their multifunction capabilities
and software development.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With the evolution of digital technology and communication, MFDs that enable seamless
conversion between paper documents and electronic documents have also evolved from being
input-output devices to a sophisticated information systems. To deliver solutions that meet the
diversifying needs of customers in various industries and niche, Canon has brought to market a full
offering of MEAP-enabled office MFP lines both in monochrome and color as well as software
products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The office imaging products category also includes the related sales of paper and chemicals,
service charges and sales of replacement parts.
</DIV>

<P align="center" style="font-size: 10pt">10
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Computer peripherals</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Computer
peripherals include laser beam printers (&#147;LBP&#148;), inkjet printers and scanners.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Developed and fostered by Canon, laser beam printers are standard output peripherals for
offices. Canon&#146;s laser beam printers are relatively small in size and have high-quality printing
capabilities attributable to Canon&#146;s expertise in laser beam printing and plain paper copying
technologies. Canon&#146;s adoption of a user-replaceable toner cartridge system containing optical
components makes its laser beam printers easy to maintain. Most of Canon&#146;s laser beam printer sales
are on an OEM basis. Canon also distributes Canon brand laser beam printers in Japan, Europe and
Oceania.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As for the monochrome laser beam printer, Canon has started to produce and sell sub-L products
that belong to the lower segment of low-end products in Southern China. The unexpected expansion of
production and selling has impelled Canon to the expansion of production in laser beam printers
business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As the inventor of bubble jet printing technology, Canon believes it continues to provide
customers with the best performance the technology has to offer. Canon provides high-performance
and high value added models both in single-function printers and multi function printers. In
response to intense competition in the inkjet printer segment, Canon has established a line-up of
multifunction printers from flagship to entry models and, in 2005, launched several new models of
single-function printers. All new model feature a print head called Canon Full-photolithography
Inkjet Nozzle Engineering (FINE), which boosts print speed and image quality up to 9600 x 2400 dpi
with microscopic droplets as small as one picoliter. In addition to high-quality images, Canon
PIXMA branded photo printers offer advanced paper handling, such as dual paper path and two-sided
duplex printing, and the new ChromaLife100 system for long-lasting photo prints. With these
advanced printer line-ups, Canon has expanded its sales volume of both single-function printers and
multi-function printers. Canon also expects the consumables business will expand accordingly.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon markets a wide variety of scanners for a spectrum of user needs, including image
scanners in the CanoScan LiDE series using Contact Image Sensor (CIS), and scanners with
Charge-Coupled Devices (CCD)&nbsp;for high resolution in the CanoScan series. CIS is a close-contact
method that allows a significant reduction in scanner weight and size. Canon has deployed its
expertise to develop space-saving, energy-efficient scanners, as well as easy PC connection via
universal serial bus interface. Although the scanner market has continued to shrink and
shift to multi-function printers, Canon has successfully introduced new scanner models to attain a
high market share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Business information products</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Business information products primarily consist of micrographic equipment, personal computers,
calculators, document scanners and work stations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With the movement toward digitalization, the need to scan documents into text data or image
data is expanding. Canon&#146;s document scanners rapidly and efficiently digitize large volumes of
information on paper. Canon offers a wide range of scanner models, including color capable compact
sheet-fed types and a flatbed model suitable for book-type documents. Canon also offers a hybrid
model that can create microfilm records while digitizing the information. Canon&#146;s diverse lineup
seeks to meet increased demands for digitizing office documents to share across Internet or
intranet platforms or to capture data from forms with optical character recognition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s calculator operations, from development to production and marketing, are centered in
Hong Kong. Canon&#146;s tradition of technological innovation has been inherited by its personal
information products, from calculators with printers to electronic dictionaries. Canon continues to
develop distinct, appealing personal information products that reflect trends and demand.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The work stations and personal computers sold by Canon are manufactured by third parties under
the manufacturers&#146; own brand names.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>- Cameras-</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon manufactures and markets digital cameras and film cameras. Canon also manufactures and
markets digital video camcorders, lenses, and various camera accessories.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;DIGIC II, an improved and upgraded new image processor, is the distinguishing feature of
Canon&#146;s digital imaging equipment, including digital compact cameras, digital SLR cameras, and
Compact Photo Printers. The DIGIC II has enhanced capabilities for high-quality image reproduction,
high-speed data processing, and high quality movie image processing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to aiming for the best possible image quality throughout its product lineup, Canon
offers digital compact cameras that are easy to use with highly sophisticated product design. The
compact digital camera market continued to grow in 2005 over 2004. Canon increased sales of compact
digital cameras through the introduction of 13 new compact digital camera models in 2005. In 2005,
new products, such as the Digital Elph SD400 (IXY 55 in Japan) and PowerShot A520/A510, were
well-received in the market worldwide, and Canon increased its market shares and remained a leader
in sales of compact digital cameras.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the Compact Photo Printer segment Canon has shown significant leadership in this market.
Although the majority of the compact photo printer purchasers are considered &#147;early adopters&#148;, as
market growth doubled in 2005, and retailers are now realizing the importance of this new business
segment. Canon introduced 4 new compact photo printers under the series name Selphy in 2005. Canon
has been able to leverage the brand recognition of its cameras to attract new customers for its
compact photo printers. In addition, Canon is starting to realize profits from sales of
consumables, such as paper and ink cartridges related to compact photo printers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The digital SLR market continues to expand. Canon introduced three new models of digital SLRs
in 2005. Canon produces its own Complementary Metal Oxide Semiconductor (CMOS)&nbsp;imaging sensors,
and each of the new models of digital SLRs were equipped with a different CMOS imaging sensor
depending on the requirement of each camera, such as lens-compatibility, image quality, shooting
speed, and affordability. Canon&#146;s digital SLRs have been widely accepted by professional
photographers and entry-level users alike.
</DIV>

<P align="center" style="font-size: 10pt">11
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In response to the strong increase in unit sales of digital cameras, Canon expanded its
internet-based customer support service system in order to strengthen customer services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although the conventional film cameras continues to decline, Canon intends to maintain its
firm commitment to lead the film camera business, while closely monitoring the market trends.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the camera lens segment, technological developments, including diffractive optical
elements, image stabilizers and ultrasonic motors, have helped Canon to maintain a technical lead
over other makers. Canon offers over 50 lenses in the EF series. These high-quality,
high-performance lenses provide outstanding performance with digital cameras as well as
silver-halide cameras, greatly contributing to Canon&#146;s sales. The market for interchangeable
lenses, which are used for SLR cameras, has grown and aggregate sales of the interchangeable lens
have increased every year for the past three years. In 2005, Canon launched a total of five new
interchangeable lens models to the market, three of these were launched in the first half of 2005
and designed especially for digital SLR cameras. Demand for digital SLR cameras has recently
increased significantly. In response to this trend, Canon intends to expand its sales and market
share by introducing interchangeable lenses especially designed for digital SLR cameras, the market
of which Canon expects to expand.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon also provides full line-up of digital video camcorders from versatile, compact and
stylish models to its flagship models for professionals. Canon&#146;s digital video camcorders
incorporate the same optical technologies and digital signal processing technology as its
world-renowned cameras, and come equipped with its one-chip digital imaging processor (DIGIC DV) to
ensure high image quality for both video and still images. Canon&#146;s digital video camcorders are
favored by many users for its optical performance, and red-green-blue primary color filters. The
adoption of megapixel CCD, secure digital (SD)&nbsp;memory cards and universal
serial bus (USB)&nbsp;connectivity offers a wealth of possibilities for the creation and management of
still images, as well as video.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The digital camcorder market continues to diversify, and, in 2005, Canon offered products for
two new segments of the digital camcorder market in order to maintain its market position in that
diversifying market. Until 2004, Canon was able to expand its market position by offering a full
line-up of MiniDV camcorders. In the autumn of 2005, Canon began offering camcorders using DVD and
camcorders with HD picture quality in addition to a full line-up of conventional MiniDV products.
Canon&#146;s first DVD camcorders, the DC20/DC10, were launched in September&nbsp;2005, and Canon&#146;s first HDV
camcorder, XL H1, was launched in November&nbsp;2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Quality and performance such as high resolution, high brightness, and greater detail or
sharpness are the key competitive factors in the market for projectors. At the end of fiscal 2004,
Canon launched its independently developed, SXGA&#043; resolution projector SX50 that is equipped with
reflective liquid crystals on silicon or LCOS technology. The SX50 features Canon&#146;s proprietary
optical system called AISYS to achieve significant improvements in brightness, size, and a price,
as is well accepted in the high resolution projector market. Canon intends to introduce
differentiated products as new trends in the market emerge.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">-<I>Optical
and other products-</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s optical and other products includes semiconductor production equipment, medical
equipment and electronic components.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Semiconductor production equipment includes steppers and mask aligners. Steppers are used to
expose circuits on silicon substrates. Canon has commercialized Krypton Fluoride excimer-laser
steppers, Argon Fluoride excimer-laser steppers and i-line steppers. At the top of its class, the
new Argon Fluoride excimer-laser scanning stepper the FPA-6000AS4 makes possible top-level
throughput rates of over 92 wafers per hour
(122&nbsp;shots&nbsp;/&nbsp;wafer) for 300&nbsp;mm wafers. In fiscal 2005,
Canon introduced the FPA-6000ES6a, as its latest 300&nbsp;mm-compatible lithography tool. The Canon
FPA-6000ES6a is a Krypton Fluoride scanning stepper enabling top-level throughput rates of over 100
wafers per hour (122&nbsp;shots&nbsp;/&nbsp;wafer). As a result of relatively weak investment by the semiconductor
manufacturers in 2005, Canon&#146;s stepper sales shrinked but unit base market share increased slightly
compared with prior year. Canon, together with nine other Japanese semiconductor-industry
companies, formed the Extreme Ultraviolet Lithography System Development Association. The
consortium aims to develop key technology for next-generation lithography.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mask aligners are used to produce liquid crystal displays, or LCDs, and Canon&#146;s model for
large-sized LCD substrates are sold particularly well in line with increased demand for large flat
panels for PC display and LCD televisions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon believes that, based on global units, it is the world leader in television broadcasting
lenses, which are used to capture images from sports and news events, concerts and studio
broadcasts. In fiscal 2005, the market for television broadcasting lenses continued to recover from
the slump after 9/11, as a result of continued economic recovery and
an ongoing global trend to
introduce digital broadcasting equipment. In fiscal2005, Canon launched 7 new lens models primarily
for television broadcasting digital cameras and maintained its position as the market leader for
television broadcasting lenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Medical equipment sold by Canon includes X-ray cameras, retinal cameras, autofractmeters and
image-processing equipments for computerized diagnostic systems. Canon&#146;s pioneering digital
radiography system takes X-ray photography and medical diagnosis into the digital age.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other products sold by Canon include electronic components, such as magnetic heads for audio
and video tape recorders and micro-motors for printers and other components, which are sold
primarily to equipment manufacturers. Canon has also been developing a cost efficient solar-power
system that incorporates amorphous silicon technology which is used in Canon&#146;s high-end monochrome
copying machines.
</DIV>

<P align="center" style="font-size: 10pt">12
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="115"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Marketing and distribution</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon sells its products primarily through subsidiaries with responsibility for specific
geographic areas. Each subsidiary is responsible for its own market research and for determining
its sales channels, advertising and promotional activities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In Japan, Canon sells its products primarily through Canon Sales Co., Inc., mainly to dealers
and retail outlets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the Americas, Canon sells its products primarily through Canon U.S.A., Inc., Canon Canada,
Inc. and Canon Latin America, Inc., mainly to dealers and retail outlets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In Europe, Canon sells its products primarily through Canon Europa N.V., which sells primarily
through subsidiaries or independent distributors to dealers and retail outlets in each locality. In
addition, copying machines are sold directly to end-users by Canon (U.K.) Ltd. in the United
Kingdom, and by Canon France S.A.S. in France.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In Southeast Asia and Oceania, Canon sells its products through subsidiaries located in those
areas. In addition, copying machines are sold directly to end-users by Canon Australia Pty. Ltd. in
Australia.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon also sells laser beam printers on an OEM basis to Hewlett-Packard
Company. Hewlett-Packard Company resells these printers under the &#147;HP LaserJet Printers&#148; name.
During fiscal 2005, such sales constituted approximately 21% of Canon&#146;s consolidated net sales, as
compared to 21% in the previous fiscal year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon continues to enhance its distribution system by promoting continuing education of its
sales personnel and improving inventory management and business planning through the weekly
analysis of Canon&#146;s sales data.
</DIV>
<DIV align="left">
<A name="116"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Service</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In Japan and overseas, product service is provided in part by independent retail outlets and
designated service centers that receive technical training assistance from Canon. Canon also
services its products directly.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Most of Canon&#146;s business machines carry warranties of varying terms depending upon the model
and the country of sale. Cameras and camera accessories carry a one-year warranty based on normal
use.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon services its copying machines and supplies replacement drums, parts, toner and paper. In
Japan, most customers enter into a maintenance service contract under which Canon provides
maintenance services, replacement drums and parts in return for a per-copy charge. Copying machines
which are not covered by a service contract may be serviced from time to time by Canon or local
dealers for a fee.
</DIV>

<P align="center" style="font-size: 10pt">13
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="117"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NET SALES BY PRODUCT GROUP</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="18" style="border-bottom: 1px solid #000000"><B>Years
ended December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>change</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>change</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18"><B>(Millions of yen except percentage data)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Business machines:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Office imaging products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;1,153,240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;1,120,972</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">3.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;1,081,995</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Computer peripherals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,244,906</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,149,914</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,089,312</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Business information products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">-10.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,067</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">-5.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">123,493</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,502,401</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,387,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,294,800</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cameras</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">879,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">763,079</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">653,540</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Optical and other products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">372,604</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">316,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">249,732</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,754,191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,467,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,198,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NET SALES BY GEOGRAPHIC AREA</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18" style="border-bottom: 1px solid #000000"><B>Years ended December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>change</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>change</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18"><B>(Millions of yen except percentage data)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unaffiliated customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">979,748</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">6.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">919,153</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">7.3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">856,851</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,046,173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,882,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,662,172</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,025,921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,802,126</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,519,023</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Americas</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unaffiliated customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,139,784</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">7.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,057,066</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">1.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,044,998</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,424</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">-16.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,863</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,101</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,147,208</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,065,929</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,053,099</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Europe</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unaffiliated customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,178,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">8.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,090,712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">12.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">968,938</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,206</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">-47.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,161</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,861</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,180,878</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,094,873</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">972,799</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unaffiliated customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">455,987</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">13.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">400,922</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">22.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">327,285</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">646,530</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">591,677</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">503,119</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,102,517</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">992,599</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">830,404</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Eliminations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unaffiliated customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">(2,702,333</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">(2,487,674</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">(2,177,253</TD>
    <TD>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">(2,702,333</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">(2,487,674</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">(2,177,253</TD>
    <TD>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unaffiliated customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,754,191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">8.3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,467,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">8.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,198,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,754,191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,467,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,198,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">Note:&nbsp;</TD>
    <TD>The segments are defined under Japanese GAAP. In grouping of segment information by product, Japanese GAAP requires that consideration be given to similarities of product types
and characteristics, manufacturing methods, sales markets, and other
factors that are similar. In grouping of segment information by
geographic area, Japanese GAAP requires that consideration be given
to geographic proximity, as well as similarities of economic
activities, interrelationships of business activities and similar
factors. Segment information by geographic area is determined by the
location of the Company or its relevant subsidiary making the sale.</TD>
</TR>
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Total operating profit by category is discussed in Item&nbsp;5A &#147;Operating Results&#148;.
</DIV>


<P align="center" style="font-size: 10pt">14
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="118"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Seasonality</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s sales for the 4th quarter are usually higher than those in the other three quarters,
mainly owing to strong demand for consumer products, such as cameras and bubble jet printers,
during the year-end holiday season. In Japan, corporate demand for office products peaks in the 1st
quarter, as many Japanese companies close their books in March. Sales also tend to increase at the
start of the new school year in each of the respective regions.
</DIV>
<DIV align="left">
<A name="119"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Sources of supply</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon purchases materials such as glass, aluminums, plastics, steels, and chemicals
for using it for various kinds of parts or manufacturing products. With the development of
globalization in production, we procure raw material from all over the world, and we select
suppliers based on a number of criteria, including environmental friendliness, quality, cost,
supply stability, and financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prices of some raw materials fluctuate according to the market. Due to the high price of crude
oil and increase in demand toward China, the market place is tight since the beginning of the year.
However, Canon believes it will be able to continue to obtain sufficient quantities of raw
materials to meet its needs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon places significant emphasis on in-house development of production tools. Canon also
produces many of the tuning and measuring tools needed for the development, maintenance and repair
of its production equipment. Key tools such as these are not marketed for sale; they are reserved
for use within the Canon Group. Canon&#146;s ability to develop its own production tools helps establish
quality control and allows for speed and flexibility when retooling is necessary &#151; a crucial
advantage in its cell production processes. Cell production is the production system in which the
entire production process is undertaken by small groups of employees. In-house tool development may
also help cut costs over time and prevent the leakage of Canon&#146;s core proprietary technologies.
</DIV>
<DIV align="left">
<A name="120"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Competition</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon encounters intense competition in all areas of its business activity throughout the
world. Canon&#146;s competitors range from some of the world&#146;s major multinational corporations to
smaller, highly specialized companies. Canon competes in a number of different business areas,
whereas many of its competitors are relatively more focused on one or more individual industries.
Consequently, Canon may face significant competition from entities that apply greater financial,
technological, sales and marketing or other resources than Canon to their activities in a
particular market segment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The principal elements of competition which Canon faces in each of its markets are technology,
quality, reliability, performance, price and customer service and support. Canon believes that much
of its ability to compete effectively depends on conducting successful research and development
activities that enable it to create new or improved products and release them on a timely basis and
at commercially attractive prices.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The competitive environments in which each product group operates are described below:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Business machines</I></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The markets for office imaging products, computer peripherals and business information
products are highly competitive.
Canon&#146;s primary competitors in these markets are Xerox Corporation/ Fuji Xerox Corporation,
Hewlett-Packard Company, Lexmark International Group Inc., Ricoh Company, Ltd., Konica Minolta
Holdings, Inc. and Epson Corporation. Canon believes that it is one of the leading global
manufacturers of copying machines, digital MFDs, laser beam printers, bubble jet printers, image
scanners and facsimile machines. In addition to the general elements of competition described
above, Canon&#146;s ability to compete successfully in these markets also depends significantly on
whether it can provide effective, broad-based &#147;business solutions&#148; to its customers that solve
multiple interrelated client needs. In particular, the ability to provide equipment and software
that connect effectively to networks (ranging in scope from local area networks to the Internet) is
often a key to Canon&#146;s competitive strength in these markets. In China, whose markets are expected
to expand since joining of the World Trade Organization, the current market leaders are Toshiba Tec
Corporation, Sharp Corporation and Konica Minolta Holdings, Inc. Canon is joining this top group by
the introduction of products suited to the market and by the reinforcement of sales and service
channels. Also in regards to the office color market, in addition to Ricoh and Xerox, Konica
Minolta has been very aggressive with its color strategy especially in Europe and the US, and
competition in this market has become fierce.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Also, as a recent trend, convergence of the copier industry and the printer industry has
become apparent. Competition at the low-end segment has turned especially fierce by the impact of
printer-based MFDs on copier market. Canon sees this market convergence as a growth opportunity and
has enhanced its  printer and printer-based MFP lineups. Canon also ensures to differentiate itself
from other competitors by offering comprehensive solutions to customers.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Cameras</I></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Competition in the camera industry is intense, with many established market participants
offering superior products with competitive pricing. Canon&#146;s primary competitors in digital cameras
are Sony Corporation, Fuji Photo Film Co., Ltd., Olympus Corporation, Nikon Corporation, Casio
Computer Co., Ltd., Matsushita Electric Industrial Co., Ltd., and Eastman Kodak Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the digital SLR market, Canon took the early lead over Nikon have gained more than 50% of
the market share, turning over complete lineup with healthy life cycle, while other manufacturers
struggled to increase their market share. However, the competition is expected to become tougher in
2006, with more newcomers with aggressive approach into the lucrative-looking market. Canon is
committed to keep leading the digital SLR market, with aggressive investment to develop new models.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s primary competitor in the lens market is Nikon Corporation whose popular class digital
single-lens reflex cameras are selling well. Another major competitor is Sigma Corporation, which
sells products that are compatible with Canon&#146;s single-lens reflex camera lens.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the declining market, competitions in the conventional film camera market is now seems to
be limited, such as Nikon Corporation in the SLR, and Olympus Corporation for the compact cameras.
Canon is committed to successfully retain a leading global market-share for SLR cameras, and
maintain its
position as one of the leading compact film camera manufacturers, while maintaining
profitability.
</DIV>

<P align="center" style="font-size: 10pt">15
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
Compact Digital Still Camera (&#147;DSC&#148;) segment industry&#146;s price drop trends will continue in
2006 and it will become tougher to maintain ongoing profit level. Also, the market in the
economically developed countries have seem to be matured.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While we see the above-mentioned tough signs, we also see many positive signs as well. For
instance, as China and Eastern Europe including Russia have shown significant growth, Canon has
increased its business accordingly since Canon has already established fairly good position in
those areas as well. Also, Canon&#146;s products&#146; cost down efforts have shown very positive progress
utilizing the advantages of significant scale merit as a world No.1 manufacture. In these sense we
believe Canon&#146;s compact DSC business will continue to be positive toward the following year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s primary competitors in digital video camcorders are Sony Corporation, Matsushita
Electric Industrial Co., Ltd., Victor Company of Japan Ltd. and Samsung Electronics Co., Ltd. In
fiscal 2005, Canon introduced DVD camcorders as well as HDV camcorders to compete with them for
continuous expand of its sales in overall market in digital video camcorders.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Steppers and Aligners</I></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market for steppers and aligners, used in the manufacture of semiconductor devices and
LCDs, is highly competitive. The market is characterized by a relatively small number of dominant
suppliers, since the development of steppers and aligners requires extremely precise design and
manufacturing techniques and, as a result, very high levels of capital investment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s primary competitors in the market for steppers and aligners are Nikon Corporation and
ASML Holding N.V., or ASML. Nikon Corporation has a reputation for its excellent technology,
especially optical lenses, and Intel Corporation, the world&#146;s leading semiconductor manufacturer,
is one of their major customers. ASML has in recent years improved its competitive position by
taking advantage of government subsidies and by focusing on the rapidly growing foundry
manufacturer industry. In fiscal 2002, ASML further increased its competitive position by acquiring
SVG Lithography Systems Inc. As a result of the acquisition, ASML is now one of the largest
semiconductor manufacturing equipment companies in Europe.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because of the substantial capital expenditures required to install and integrate equipment
into a semiconductor production line, semiconductor manufacturers tend to purchase their stepper
and aligner production equipment from the vendor that originally supplied the chip fabrication
equipment. Canon competes principally on its ability to meet and exceed product specifications,
including resolution and throughput, quality, reliability and system maintenance cost. Because of
the very rapid pace of technological innovation in the semiconductor industry, Canon also believes
that its ability to provide new products on a timely basis is also a key competitive consideration
for customers seeking to integrate stepper and aligner production systems into the planning and
design of their new facilities.
</DIV>
<DIV align="left">
<A name="121"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Patents and licenses</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon holds a large number of patents (including utility model rights), design rights and
trademarks in Japan and abroad to protect its technology products that arise from its research and
development and utilizes these intellectual property rights as important strategic management
tools. For instance, Canon has been utilizing its intellectual property rights such as patents to
expand its products business operations and to form alliances and exchange technologies, with other
companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to the Statistical Report issued annually by the United States Patent and Trademark
Office, Canon has been consistently ranked as second or third in recent years in terms of the
number of patents issued in the United States, as Canon maintained reputation as a famous
technology-oriented company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon has granted licenses with respect to its patents to various Japanese and foreign
companies, particularly in areas such as electrophotography, laser beam printers, multifunction
printers, facsimiles and cameras.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some examples include:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="60%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Oki Electric Industry Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(LED printers, multifunction printers and facsimiles)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Matsushita Electric Industrial Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(electrophotography)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ricoh Company, Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(electrophotography)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sanyo Electric Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(electronic still camera)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Samsung Electronics Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(laser beam printers, multifunction printers and facsimiles)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Brother Industries, Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(electrophotography and facsimiles)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kyocera Mita Corporation
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(electrophotography)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Konica Minolta Holding Co.,Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(business machines)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Toshiba Corporation
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(business machines)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon has also been granted licenses with respect to patents held by other companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some examples include:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="60%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Jerome H. Lemelson Patent Incentives, Inc.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(computer systems, image recording apparatus, and communication apparatus)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Energy Conversion Devices, Inc.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(solar battery)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Honeywell Inc.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(camera and video products)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Gilbert P. Hyatt U.S. Philips Corporation
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(microcomputer)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Nano-Proprietary Inc.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(FED technology)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">16
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon has also entered into cross-licensing agreements with other major industry participants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some examples include:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="60%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">International Business Machines Corporation
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(information handling systems)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hewlett-Packard Company
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(bubble jet printers)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Xerox Corporation
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(business machines)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Matsushita Electric Industrial Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(video tape recorders and video cameras)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Eastman Kodak Co.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(electro-photography and image processing technology)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ricoh Company, Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(electrophotography products, facsimiles and word processors)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon has placed high priority on the management of its intellectual property as part of its
management strategies to enhance its global business operations. Some products which are material
to Canon&#146;s operating results, incorporate patented technology which is critical to the continued
success of these products. Typically, these products incorporate technology reflected in dozens of
different patents. Canon does not believe that its business, as a whole, is dependent on, or that
its profitability would be materially affected by the revocation, termination, expiration or
infringement upon, any particular patent, copyright, license or intellectual property rights or
group thereof.
</DIV>
<DIV align="left">
<A name="122"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Environmental regulations</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon is subject to a wide variety of laws and regulations as well as industry standards
relating to energy and resource conservation, recycling, global warming, pollution prevention,
pollution remediation, and environmental health and safety. Some of the environmental laws which
affect Canon&#146;s businesses are summarized below.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><I>1.</I></TD>
    <TD>&nbsp;</TD>
    <TD><I>European Union Directive on the Restriction of the Use of Certain Hazardous Substances in
Electrical and Electronic Equipment or RoHS Directive, and Directive on Waste Electrical and
Electronic Equipment or WEEE Directive.</I></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These directives were published in the European Union&#146;s Official Journal on February&nbsp;13, 2003.
Member states were required to bring into force the laws necessary to comply with these directives
by August&nbsp;13, 2004. Commencing July&nbsp;1, 2006, companies must ensure that their electrical and
electronic equipment sold in the European Union does not contain lead, cadmium, hexavalent
chromium, mercury, polybrominated biphenyls or polybrominated diphenyl ethers if placed on the
market after that date. Pursuant to the RoHS Directive, Canon will be required to adapt its
products so that they do not contain the prohibited hazardous substances.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The WEEE Directive requires that after August&nbsp;13, 2005, companies that sell electrical and
electronic equipment bearing their trade names in the European Union must arrange and pay for the
collection, treatment, recycling, recovery and disposal of their equipment and achieve designated
recycling rates by December&nbsp;31, 2006. Pursuant to the WEEE Directive, Canon is joining a collective
compliance scheme for WEEE Directive in each member state, and will achieve the recycling ratio of
waste electrical and electronic equipment through these schemes by the target date. The increased
cost associated with the WEEE Directive may adversely affect Canon&#146;s results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>2.</I>&nbsp;&nbsp;&nbsp;<I>Soil Pollution Prevention Law of Japan</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Soil Pollution Prevention Law of Japan, administered by the Japanese Ministry of the
Environment, went into effect in February&nbsp;2003. The law requires an owner of land to have the soil
investigated by a designated organization for the purpose of measuring the level of soil pollution
when the land is to be transferred or to be used for another purpose. The results of such
investigation are reported to the prefectural governor. If the soil pollution is not within
standards specified in the law, the governor will designate the land as &#147;a designated area&#148;,
publicly announce such designation and make available upon request the investigation report. The
substances designated in the law consist of 25 chemical groups, including substances such as lead,
arsenic, and trichloro ethylene. If there is a possibility that the soil pollution of the
designated area may affect human health, the governor will issue an order to the land owner to take
remedial actions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
response to the law, Canon had commenced a detailed survey and measurement of soil and
groundwater to determine the existence of pollution at all of Canon Group&#146;s operational sites in
Japan. Additional costs may arise as remedial measures become necessary. These factors may
adversely affect Canon&#146;s results of operations and financial conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See
&#147;Risk Factors &#151; Risks Related to Environmental Issues
&#151; Environmental clean-up and remediation
costs relating to Canon&#146;s properties and associated litigation could decrease Canon&#146;s net cash
flow, adversely affect its results of operations and impair its financial condition.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>3.</I>&nbsp;&nbsp;&nbsp;<I>Law for Promotion of Effective Utilization of Resources of Japan</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Law for Promotion of Effective Utilization of Resources of Japan, administered by the Japanese
Ministry of Economy, Trade and Industry, was enacted in April&nbsp;2001. This Law requires manufacturers
of &#147;specified reuse-promoted products&#148;, including copiers, to promote the use of recyclable
resources and recovered products (designing and manufacturing products that can be easily reused or
recycled). These requirements will increase Canon&#146;s costs and may have an adverse affect on its
results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This law will be amended to require the producers of covered products to mark their products
manufactured on and after July&nbsp;1, 2006 with an orange &#147;content mark&#148; when they contain any of 6
substances restricted by EU RoHS Directive. If products do not contain these 6 substances, they can
be marked with &#147;green mark&#148; voluntarily. This marking system is called Japan-Marking of Special
Substances, or &#147;J-MOSS,&#148; and is provided by JIS C 0950:2005 standards. Although
the copying machines do not have to be marked with these &#147;content marks&#148; at present, they will
surely be covered by the requirement in the future. We expect that this new requirement will have
influence on the green procurement of Japanese governmental agencies and might have some effect on
Canon&#146;s business.
</DIV>

<P align="center" style="font-size: 10pt">17
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>4.</I>&nbsp;&nbsp;&nbsp;<I>Law on Promoting Green Purchasing of Japan</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Law on Promoting Green Purchasing of Japan, administered by the Japanese Ministry of the
Environment, took effect in April&nbsp;2001. The law encourages both national and local governments to
procure products with low environmental burdens. Businesses are required to provide information
that is necessary to determine the environmental impact of products that they manufacture.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In response to the law, Canon now promotes to:
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>manufacture products that consume less electricity to prevent global warming and to conserve energy,</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>use recycled parts and recycled materials,</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reduce the types of raw materials used in order to conserve resources, and</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>accelerate the date by which the requirements of the law are implemented to promote the elimination of hazardous substances.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The law also requires Canon to collect its used products and recycle them, establish alternative
technologies for hazardous substances used in products and standardize the substances used in its
products. These measures will entail additional costs and may adversely affect its results of
operations and financial conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>5.&nbsp;&nbsp;&nbsp;Draft
European Union Directive on Batteries and Accumulators and Spent
Batteries and Accumulators</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;21, 2003, the European Commission proposed a draft Directive on Batteries and
Accumulators and Spent Batteries and Accumulators to replace a similar existing directive. In
November&nbsp;2005, the European Parliament started its second reading of this matter. Whereas the
existing directive applies only to batteries with a certain mercury, cadmium and lead content, the
new directive applies to all batteries and accumulators placed on the European Community market.
When enacted, the new directive will require specified labels on all batteries. In addition, the
directive establishes specific targets for collection, treatment and recycling of batteries and
accumulators. Canon expects that compliance with the directive will increase its financial costs
such as recycling fees and guarantees of products placed on the market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>6.&nbsp;&nbsp;&nbsp;Clean Production Promotion Law of China
</I></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Clean Production Promotion Law of China, administered by the standing committee of the National
people&#146;s congress, effective as of January&nbsp;1, 2003, provides, among other things, for
environmentally conscious design, elimination of hazardous substances, ease of disassembly,
material identification, collection and recycling. The Chinese government is expected to publish a
list of products to be collected, but it is yet unclear what action Canon needs to take at the
present time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>7.&nbsp;&nbsp;&nbsp;Administrative Measures on the Control of Pollution Caused by Electronic Information Products of China
</I></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Modeled on the European Union RoHS Directive described above, the Chinese Ministry of Information
Industry published Administrative Measures on the Control of Pollution Caused by Electronic
Information Products on February&nbsp;28, 2006. These measures regulate the content of electronic
information products, and will be implemented as of March&nbsp;1, 2007. All the electronic information
products would have to put a certain China specific mark on them and to show their contents of the
EU RoHS substances. In addition, the content of 6 substances in specific electronic information
products (those specified in the &#147;list for emphasized management&#148;) would be restricted by the
similar limitation of the EU RoHS Directive, and China specific compulsory products certification
system will be introduced for such products. However, the standards to implement these measures,
and the &#147;emphatic management list&#148; have not been published. These requirements will increase
Canon&#146;s costs and may have an adverse affect on its results of operations and financial conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>8.&nbsp;&nbsp;&nbsp;Executive Order of the United States
</I></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Executive Order 13221 Energy Efficient Standby Power Devices, published on August&nbsp;2, 2001 and
amended on September&nbsp;3, 2004 (Administered by U.S. Department of Energy), requires the Federal
Government to purchase consumer products that use no more than one watt (two watt for a product
with a facsimile function) in their standby power consuming mode. Canon&#146;s products such as laser
beam printer, MFP and FAX need to have a hard switch or they need to incorporate energy conserving
designs which reduce the energy consumption at the standby mode to meet the require watts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>9.&nbsp;&nbsp;&nbsp;The European Framework for the management of chemical substances, or REACH Regulations
</I></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The European Union is currently considering the REACH Regulations which would establish a framework
for the management scheme for all the commercial chemical substances. This framework, if adopted,
would apply to almost all the chemicals (that is, products in gaseous, liquid, paste or powdery
form) and some of the &#147;articles&#148; (products in solid state) manufactured in or imported into the
European Union. All the chemicals manufactured/imported over specific threshold would have to
register in the European Union and provide information about their usage or their chemical
characters, etc., and use of substances regarded as &#147;dangerous&#148; might be prohibited. The
Regulations are still under discussion in the European Parliament and the Council and the final
details are unclear yet, but if such requirements are enacted, they might increase Canon&#146;s costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>10.&nbsp;&nbsp;&nbsp;The European Framework for the Setting of Requirements for Energy-Using Products (so-called &#147;EuP directive&#148;)
</I></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The European Union published the directive that would establish a framework for the setting of
environmental requirements for energy-using products, or the &#147;EuP directive&#148;, in July&nbsp;22, 2005.
Member states are required to bring into force the laws necessary to comply with the directive
concerning eco-design by August&nbsp;11, 2007. This framework directive would apply to all products that
use energy, and under this directive, &#147;implementing measures&#148; for specific product categories
would be adopted by the European Commission and the member states. Until these implementing
measures are clarified, it is difficult to estimate the concrete effects of the EuP directive. But
one of the first implement measures is expected to require that covered products should not use
more than 1 watt (2 watts for a product with a facsimile function) in their standby mode, like the
U.S. Executive Order 13221 mentioned in paragraph 8 above.
</DIV>

<P align="center" style="font-size: 10pt">18


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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>11.&nbsp;&nbsp;&nbsp;Kyoto Protocol to the United Nations Framework Convention on Climate Change
</I></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Kyoto Protocol to the United Nations Framework Convention on Climate Change entered into
force on February&nbsp;16, 2005 as Russia ratified it in November&nbsp;2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to achieve a goal set in the Kyoto Protocol, a Kyoto Protocol Target Achievement Plan
was issued by the Japanese Government and decided at a Cabinet Meeting in April, 2005 and ensuing
revision of Energy Conservation Law as well as Global Warming Prevention Promotion Law will come
into force in April, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon will try to achieve its voluntary action plan that corresponds to voluntary action plan
of Electric &#038; Electronic Industry Associations to which Canon belongs and comply with the revised
laws and submit information and plans required by the Japanese Government. However, Canon further
expects that the Japanese Government might adopt stricter measures to let Japanese industries
achieve their voluntary action plans by all means or other scheme to let Japanese nation share part
of costs to achieve the Japanese goal by means of an environment taxation, etc. Therefore, Canon
will carefully monitor the Japanese Government and consider a contingency plan, among others,
including a Kyoto Mechanism.
</DIV>
<DIV align="left">
<A name="123"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>C.</B>&nbsp;&nbsp;&nbsp;<B>Organizational structure</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon Inc. and its subsidiaries and affiliates form a group of which Canon Inc. is the parent
company. As of December&nbsp;31, 2005, Canon had 200 consolidated subsidiaries and 13 affiliated
companies accounted for by the equity method.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table lists the significant subsidiaries owned by Canon Inc., all of which are
consolidated, as of December&nbsp;31, 2005.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="37%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="38%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Proportion of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Proportion of</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>ownership interest</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>voting power</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name of company</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Head office location</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>owned</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>held</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Canon Sales Co., Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Tokyo, Japan</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">50.3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">51.1</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Canon U.S.A., Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">New York, U.S.A.</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Canon Europa N.V.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amstelveen, The Netherlands</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">19
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="124"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>D.</B>&nbsp;&nbsp;&nbsp;<B>Property, plants and equipment</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s manufacturing is conducted primarily at 23 plants in Japan and 17 plants in other
countries. Canon owns all of the buildings and the land on which its plants are located, with the
exception of certain leases of land and floor space of certain of its subsidiaries. The names and
locations of Canon&#146;s plants
and other facilities, their approximate floor space and the principal activities and products
manufactured therein as at December&nbsp;31, 2005 are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="55%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Floor space</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(including</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name and location</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>leased space)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Principal activities and products manufactured</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Domestic</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Thousands of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>square feet)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Headquarters, Tokyo
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2,267</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">R&#038;D, corporate administration, other functions</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mizonokuchi Human Resources Development center, Kanagawa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">78</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Human Resources Development Training &#038; administration</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kosugi Office, Kanagawa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">398</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Development of software for office imaging products</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Fuji-Susono Research Park, Shizuoka
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,038</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">R&#038;D in electrophotographic technologies</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hiratsuka Development Center, Kanagawa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">375</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Development of displays, electronic devices</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ayase Office, Kanagawa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">394</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">R&#038;D and manufacturing of semiconductor devices</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Optics R&#038;D Center, Tochigi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">473</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">R&#038;D in optical technologies, development of broadcasting
equipment</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tamagawa Plant, Kanagawa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">434</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Development of Ink Jet printers, Ink Jet chemical products</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yako Development Center, Kanagawa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">509</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Development of inkjet printers, Ink Jet chemical products</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Utsunomiya Plant, Tochigi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,442</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Manufacturing of EF lenses, video camcorder lenses,
broadcasting lenses, lenses for business machines, other
specialized optical lenses</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Toride Plant, Ibaraki
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2,910</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">R&#038;D in electrophotographic technologies, mass-production
trials and support; manufacturing of chemical products</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ami Plant, Ibaraki
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,338</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Manufacturing of office imaging products, chemical
products, semiconductor production equipment; design and
manufacturing of factory automation equipment and metal
molds</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Utsunomiya Optical Products Plant, Tochigi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,420</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">R&#038;D, manufacturing, sales and servicing of semiconductor
equipment; sales of broadcasting equipment; R&#038;D and sales
of medical equipment</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Electronics Inc., Saitama and Gunma
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,074</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Development, production and sales of camera components,
magnetic heads, sensors, micrographics, document
scanners, LBPs, laser scanner units, portable data
terminals, semiconductor equipment</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Finetech Inc, Ibaraki, Tokyo, Yamanashi, and Fukui
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">899</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Production and sales of business machines, business
machine peripherals, chemical products, business-use
printers</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Precision Inc., Aomori
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,280</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Development, production and sales of motors; production
of toner cartridges, sensors</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Optron Inc., Ibaraki
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">150</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Polishing of optical crystals (for steppers, cameras,
telescopes), vapor deposition materials</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">20
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="55%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Floor space</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(including</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name and location</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>leased space)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Principal activities and products manufactured</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Domestic</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Thousands of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>square feet)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Chemicals Inc., Ibaraki
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,756</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Toner cartridges and advanced-function parts, plastic precision-molded parts, metal molds</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Components Inc., Saitama
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">430</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Image sensor units, printed circuit boards, Ink Jet print heads/ink tanks</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Oita Canon Inc., Oita
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,149</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">SLR cameras, digital SLR and compact cameras, digital video camcorders, visual communication cameras</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Nagahama Canon Inc., Shiga
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,059</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">LBPs, toner cartridges, a-si drums, Ink Jet print heads/ink tanks</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Oita Canon Materials Inc., Oita
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,201</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chemical products for copying machines and printers</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ueno Canon Materials Inc., Mie
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">541</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chemical products for copying machines and printers</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Fukushima Canon Inc., Fukushima
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">970</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Production of inkjet printers, Ink Jet print heads/ink tanks; analysis of software and fonts</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Semiconductor Equipment Inc., Ibaraki
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">583</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Development and production of semiconductor production-related equipment; production of
small-sized copying machines and copying units</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Ecology Industry Inc., Ibaraki and Saitama
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">329</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Recycling of toner cartridges; business machine repair</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Nisca Corporation, Yamanashi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">470</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Development, design, production and sales of business machines, information products, optical equipment</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Miyazaki Daishin Canon Co., Ltd., Miyazaki
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">121</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Digital video camcorders, digital cameras, electronics packaging</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon ANELVA Corporation
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">562</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Electron devices, panel devices, electronic components for R&#038;D</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Machinery Inc.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">296</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Semiconductor, electronic components, energy relation</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">SED Inc.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">291</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Flat-screen SED (Surface-conduction Electron-emitter Display) panels</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">21
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="55%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Floor space</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(including</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name and location</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>leased space)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Principal activities and products manufactured</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Overseas</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Thousands of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>square feet)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#091;Europe&#093;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Giessen GmbH, Giessen, Germany
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">362</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Production and remanufacturing of copying machines; refilling
of toner cartridges; remanufacturing of semiconductor
production equipment</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Bretagne S.A.S., Liffre, France
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">506</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Production of low-speed copying machines and toner cartridges;
recycling of toner cartridges</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#091;America&#093;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Virginia, Inc., Virginia, U.S.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">828</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Production of LBPs, toner cartridges, toner for copying machines</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#091;Asia&#093;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Inc., Taiwan, Taiwan
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">414</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Production of SLR and compact cameras, EFS and other lenses,
precision-metal molds</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Opto (Malaysia) Sdn. Bhd., Selangor, Malaysia
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">551</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Production of Digital cameras, EF lenses, optical lens parts</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Dalian Business Machines, Inc., Dalian China
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,095</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Production and recycling of toner cartridges; production of LBPs, MFDs</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Cannon Zhuhai, Inc., Zhuhai, China
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">678</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Production of Compact cameras, digital cameras, LBPs, MFDs,
image scanners, contact image sensors</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tianjin Canon Inc., Tianjin, China
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">148</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Production and sales of copying machines</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Hi-Tech (Thailand) Ltd., Ayutthaya, Thailand
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">976</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Ink Jet printers, personal-use copying machines, facsimile machines, MFDs</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Engineering (Thailand) Ltd., Ayutthaya, Thailand
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">129</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Metal molds, plastic injection mold parts</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Zhongshan Business Machines Co., Ltd., Zhongshan, China
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">492</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Production of laser beam printers</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Vietnam Co., Ltd., Hanoi, Vietnam
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,043</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Production of Ink Jet printers</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon (Suzhou) Inc., Suzhou, China
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">797</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Production of Color and monochrome digital copying machines</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Finetech (Suzhou) Business Machines Inc., Suzhou, China
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">305</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Production of digital printers, peripherals, service parts</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thai Nisca Co. Ltd., Ayutthaya, Thailand
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">190</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Production and sales of optical equipment and OA equipment</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Finetech Industries Development Co., Ltd., Shenzhen, China
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">215</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Production and sales of copying machines, semi-finished products, parts</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canon Ayutthaya (Thailand) Ltd., Thailand
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">182</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Ink Jet printers, personal-use copying machines, facsimile machines, MFDs</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon considers its manufacturing and other facilities to be well maintained and believes that
its plant capacity is adequate for its current requirements.
At December&nbsp;31, 2005, land, buildings and related equipment with a book value of Yen 7,423&nbsp;million
were subject to mortgages securing Yen 2,227&nbsp;million of Canon&#146;s indebtedness.
</DIV>

<P align="center" style="font-size: 10pt">22
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="125"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;5.</B>&nbsp;&nbsp;&nbsp;<B>Operating and Financial Review and Prospects</B>
</DIV>

<DIV align="left">
<A name="126"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>A.</B>&nbsp;&nbsp;&nbsp;<B>Operating Results</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following discussion and analysis provides information that management believes to be
relevant to understanding Canon&#146;s consolidated financial condition and result of operations.
</DIV>
<DIV align="left">
<A name="127"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Overview</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon is one of the world&#146;s leading manufacturers of copying machines, laser beam printers,
inkjet printers, cameras, steppers and aligners. Canon earns revenues primarily from the
manufacture and sale of these products domestically and internationally. Canon&#146;s basic management
policy is to contribute to the prosperity and well-being of the world while endeavoring to become a
truly excellent global corporate group targeting continued growth and development.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon divides its businesses into three product groups: business machines, cameras and optical
and other products. The business machines product group has three sub-groups: office imaging
products, computer peripherals and business information products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Economic environment</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Looking back at the global economy in 2005, the U.S. economy continued to display growth
despite concern over the economic impact of escalating crude oil prices and the damage caused by
Hurricane Katrina, with healthy employment conditions and continued growth in consumer spending. In
Europe, while the recovery in consumer spending appeared to falter, such factors as growth in the
production sector amid strong exports indicate a trend toward moderate recovery. As for Asia, China
continued to achieve a high rate of economic growth, mainly fueled by exports, while other Asian
economies also recorded generally favorable performances. In Japan, the economy continued to
gradually recover owning to such factors as increased corporate investment supported by favorable
corporate profits and improved consumer spending.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Market environment</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With respect to the markets in which Canon operates, demand in the digital camera segment for
single lens reflex (&#147;SLR&#148;) models continued to grow significantly during fiscal 2005. Sales of
digital compact cameras also remained strong to realize healthy overall growth for the segment.
Demand for network digital multifunction devices (&#147;MFDs&#148;) remained solid as the office market,
including small-scale enterprises, moved toward color and multifunctionality. Although sales of
computer peripherals, including printers, grew for both multifunction and color models, the segment
suffered amid a shift in further demand toward high-performance low-priced machines and severe
price competition. Demand for steppers, used in the production of semiconductors, tapered off after
the summer of 2004 as the chip manufacturing market entered a correction phase. The market for
projection aligners, which are used in the production of liquid crystal display (&#147;LCD&#148;) panels,
enjoyed stable growth, fueled by increased investment by LCD panel manufacturers amid the rapid
expansion of the LCD television market. The average value of the yen
for the year was Yen&nbsp;110.58 to
the U.S. dollar and Yen&nbsp;137.04 to the euro, representing a year-on-year decrease of almost 2%
against both currencies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Summary of operations</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon achieved record highs in both consolidated net sales and net income, and a sixth
consecutive year of sales and profit growth, mainly due to a significant increase in sales of
digital cameras and color network digital MFDs, along with an increase in sales of projection
aligners. In fiscal 2005, Canon achieved 8.3% growth in net sales, to
Yen&nbsp;3,754,191&nbsp;million, and an
11.9% increase in net income, to Yen&nbsp;384,096&nbsp;million. Canon&#146;s gross profit increased by 6.2%, to
Yen&nbsp;1,819,043&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Key performance indicators</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following are the key performance indicators (&#147;KPIs&#148;) that Canon uses in managing its
business. The changes from year to year in these KPIs are set forth in the table shown below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>KEY PERFORMANCE INDICATORS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2001</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales (Millions of yen)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;3,754,191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;3,467,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;3,198,072</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;2,940,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;2,907,573</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit to net sales ratio</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">48.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">49.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">50.3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">47.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">44.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">R&#038;D expense to net sales ratio</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">7.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">7.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">8.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">7.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">7.5</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating profit to net sales ratio</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">15.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">15.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">14.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">11.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">9.7</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Inventory turnover within days</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="right">47 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="right">49 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="right">49 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="right">51 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="right">57 days</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Debt to total assets ratio</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">1.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">3.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">5.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">10.4</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stockholders&#146; equity to total assets ratio</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">64.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">61.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">58.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">54.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">51.3</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Note: Inventory turnover within days; Inventory divided by net sales for the previous six
months, multiplied by 182.5.
</DIV>


<P align="center" style="font-size: 10pt">23
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt">-Revenues-
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As Canon seeks to become a truly excellent global company, one indicator upon which Canon&#146;s
management places strong emphasis is revenue. Following are some of the KPIs relating to revenues
that management considers to be important.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net sales is one such KPI. Canon derives net sales primarily from the sale of products and, to
a lesser extent, providing of services relating to its products. Sales vary based on such factors
as product demand, the number and size of transactions within the reporting period, product
reputation for new products, and changes in sales prices. Other factors involved are market share
and market environment. In addition, management considers an evaluation of net sales by product
group to be important in assessing Canon&#146;s performance in sales in various product groups in light
of market trends.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross profit ratio (ratio of gross profit to net sales) is another KPI for Canon. Through its
reforms in product development, Canon has been striving to shorten product development lead times
in order to launch new, competitively priced products at a faster pace. In addition, Canon has
achieved cost reductions through efficiency enhancements in production. Canon believes that these
achievements have contributed to improving Canon&#146;s gross profit ratio, and Canon intends to
continue to pursue further shortening of product development lead times and reductions in
production costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating profit ratio (ratio of operating profit to net sales) and research and development
(&#147;R&#038;D&#148;) expense to net sales ratio are considered by Canon to be KPIs. Canon is focusing on two
areas for improvement. On the one hand, Canon strives to control and reduce its selling, general
and administrative expenses. On the other hand, Canon&#146;s R&#038;D policy is designed to maintain a high
level of spending in core technology in order to sustain Canon&#146;s leading position in its current
fields of business, and to explore possibilities in other markets. Canon believes such investments
will be the basis for future success in its business and operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">-Cash Flow Management-
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon also places significant emphasis on cash flow management. The following are the KPIs
relating to cash flow management that management believes to be important.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventory turnover within days is a KPI because it is a measure of supply chain management
efficiency. Inventories have inherent risks of becoming obsolete, deteriorating or otherwise
decreasing in value significantly, which may adversely affect Canon&#146;s operating results. To
mitigate these risks, management believes that it is important to continue reducing inventories and
shortening production lead times in order to achieve early recovery of related product expenses by
strengthening supply chain management.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s management seeks to meet its liquidity and capital requirements primarily with cash
flow from operations and also seeks debt-free operations. For a manufacturing company such as
Canon, the process for realizing profit on any endeavor can be lengthy, involving as it does R&#038;D,
manufacturing and sales activities. Management, therefore, believes that it is important to have
sufficient financial strength so that it does not have to rely on external funding. Canon has
continued to reduce its reliance on external funding for capital investments in favor of generating
the necessary funds from its own operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stockholders&#146; equity to total assets ratio (ratio of total stockholder&#146;s equity to total assets)
is another KPI for Canon. Canon believes that stockholders&#146; equity to
total assets ratio measures its long-term viability. Canon believes that a high or increasing
stockholders&#146; equity ratio usually indicates that Canon has a good, or improving ability to fund
debt obligations and other unexpected expenses, which means in the long-term that Canon is better
able to maintain a high level of stable investments for its future operations and development. As
Canon puts a strong emphasis on its research and development activities, management believes that
it is important to maintain a stable financial base and, accordingly, a high level of stockholders&#146;
equity to total assets ratio.
</DIV>
<DIV align="left">
<A name="128"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Critical accounting policies and estimates</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements are prepared in accordance with U.S. generally accepted
accounting principles, and based on the selection and application of significant accounting
policies, which require management to make significant estimates and assumptions. Canon believes
that the following are some of the more critical judgment areas in the application of its
accounting policies that currently affect its financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Revenue recognition
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon generates revenue principally through the sale of consumer products, equipment, supplies and
related services under separate contractual arrangements. Canon recognizes revenue when persuasive
evidence of an arrangement exists, delivery has occurred and title and risk of loss have been
transferred to the customer, the sales price is fixed or determinable, and collectibility is
probable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For arrangements with multiple elements, which may include any combination of equipment,
installation and maintenance, Canon allocates revenue to each element based on its relative fair
value if such element meets the criteria for treatment as a separate unit of accounting as
prescribed in the Emerging Issues Task Force Issue No.00-21 (&#147;EITF 00-21&#148;), &#147;Revenue Arrangements
with Multiple Deliverables.&#148; Otherwise, revenue is deferred until the undelivered elements are
fulfilled as a single unit of accounting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue from sales of consumer products including office imaging products, computer
peripherals, business information products and cameras is recognized upon shipment or delivery,
depending upon when title and risk of loss transfer to the customer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue from sales of optical equipment such as steppers and aligners sold with customer
acceptance provisions related to their functionality is recognized when the equipment is installed
at the customer site and the specific criteria of the equipment functionality are successfully
tested and demonstrated by Canon. Service revenue is derived primarily from maintenance contracts
on equipment sold to customers and is recognized over the term of the contract.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Most office imaging products are sold with service maintenance contracts for which the
customer typically pays a base service fee plus a variable amount based on usage. Revenue from
these service maintenance contracts is recognized as services are provided.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue from the sale of equipment under sales-type leases is recognized at the inception of
the lease. Income on sales-type leases and direct-financing leases is recognized over the life of
each respective lease using the interest method. Leases not qualifying as sales-type leases or
direct-financing leases are accounted for as operating leases and related revenue is recognized
over the lease term.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon records estimated reductions to sales at the time of sale for sales incentive programs
including product discounts, customer promotions and volume-based rebates. Estimated reductions in
sales are based upon historical trends and other known factors at the time of sale. In addition,
Canon provides price protection to certain resellers of its products, and records reductions to
sales for the estimated impact of price protection obligations when announced.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Estimated product warranty costs are recorded at the time revenue is recognized and is
included in selling, general and administrative expenses. Estimates for accrued product warranty
costs are based on historical experience, and are affected by ongoing product failure rates,
specific product class failures outside of
the baseline experience, material usage and service delivery costs incurred in correcting a
product failure.
</DIV>

<P align="center" style="font-size: 10pt">24
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Allowance for doubtful receivables
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Allowance for doubtful receivables is determined using a combination of factors to ensure that
Canon&#146;s trade and financing receivables are not overstated due to uncollectibility. Canon maintains
a bad debt reserve for all customers based on a variety of factors, including the length of time
receivables are past due, trends in overall weighted average risk rating of the total portfolio,
macroeconomic conditions, significant one-time events and historical experience. Also, Canon
records specific reserves for individual accounts when Canon becomes aware of a customer&#146;s
inability to meet its financial obligations to Canon, such as in the case of bankruptcy filings or
deterioration in the customer&#146;s operating results or financial position. If circumstances related
to customers change, estimates of the recoverability of receivables would be further adjusted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Valuation of inventories
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories are stated at the lower of cost or market value. Cost is determined principally by the
average method for domestic inventories and the first-in, first-out method for overseas
inventories. Market value is the estimated selling price in the ordinary course of business less
the estimated costs of completion and the estimated costs necessary to make a sale. Canon routinely
reviews its inventories for their salability and for indications of obsolescence to determine if
inventories should be written-down to market value. Judgments and estimates must be made and used
in connection with establishing such allowances in any accounting period. In estimating the market
value of its inventories, Canon considers the age of the inventories and the likelihood of spoilage
or changes in market demand for its inventories.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Environmental liabilities
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon is subject to liability for the investigation and clean-up of environmental contamination at
each of the properties that Canon owns or operates, as well as at certain properties Canon formerly
owned or operated. Canon employs extensive internal environmental protection programs that focus on
preventive measures. Canon conducts environmental assessments for a number of its locations and
operating facilities. If Canon was to be held responsible for damages in any future litigation or
proceedings, such costs may not be covered by insurance and may be material. The liability for
environmental remediation and other environmental costs is accrued when it is considered probable
and costs can be reasonably estimated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Valuation of deferred tax assets
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon currently has significant deferred tax assets, which are subject to periodic recoverability
assessments. Realization of Canon&#146;s deferred tax assets is principally dependent upon its
achievement of projected future taxable income. Canon&#146;s judgments regarding future profitability
may change due to future market conditions, its ability to continue to successfully execute its
operating restructuring activities and other factors. Any changes, in any of these factors may
require possible recognition of significant valuation allowance to these deferred tax asset
balances. When Canon determines that certain deferred tax assets may not be recoverable, the
amounts which will not be realized are charged to income tax expense and will adversely affect net
income.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Employee retirement and severance benefit plans
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon has significant employee retirement and severance benefit obligations which are recognized
based on actuarial valuations. Inherent in these valuations are key assumptions, including discount
rates and expected return on plan assets. Management must consider current market conditions,
including changes in interest rates, in selecting these assumptions. Other assumptions include
assumed rate of increase in compensation levels, mortality rate and withdrawal rate. Changes in
these assumptions inherent in the valuation are reasonably likely to occur from period to period.
These changes in assumptions may lead to changes in related employee retirement and severance
benefit costs in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Actual results that differ from the assumptions are accumulated and amortized over future
periods and, therefore, generally affect future pension expenses. While management believes that
the assumptions used are appropriate, the differences may affect employee retirement and severance
benefit costs in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In preparing its financial statements for fiscal 2005, Canon estimated a discount rate of 2.7%
and an expected long-term rate of return on plan assets of 4.6%. In estimating the discount rate,
Canon uses available information about rates of return on high-quality fixed-income governmental
and corporate bonds currently available and expected to be available during the period to the
maturity of the pension benefits. Canon establishes the expected long-term rate of return on plan
assets based on management&#146;s expectations of the long-term return of the various plan asset
categories in which it invests. Management develops expectations with respect to each plan asset
category based on actual historical returns and its current expectations for future returns.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Decreases in discount rates lead to increases in actuarial pension benefit obligations which,
in turn, could lead to an increase in service cost and amortization cost through amortization of
actuarial gain or loss, a decrease in interest cost and vice versa. A decrease of 50 basis points
in the discount rate increases the projected benefit obligation by approximately 11%. The net
effect of changes in the discount rate, as well as the net effect of other changes in actuarial
assumptions and experience, are deferred until subsequent periods, as permitted by the Statement of
Financial Accounting Standards No.&nbsp;87, &#147;Employers&#146; Accounting for Pensions.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Decrease in expected return on plan assets may increase net periodic benefit cost by
decreasing expected return amounts, while differences between expected value and actual fair value
of those assets could affect pension expense in the following years, and vice versa. For fiscal
2006, if a change of 50 basis points in the expected long-term rate of return on plan assets is to
occur, that may cause a change of approximately Yen&nbsp;2,730&nbsp;million in net periodic benefit cost.
Canon multiplies management&#146;s expected long-term rate of return on plan assets by the value of its
plan assets, to arrive at the expected return on plan assets that is included in pension income
(expense). Canon defers recognition of the difference between this expected return on plan assets
and the actual return on plan assets. The net deferral of unrecognized actuarial gains (losses)
affects the value of plan assets in future fiscal years and, ultimately, future pension income
(expense).
</DIV>

<P align="center" style="font-size: 10pt">25
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="129"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Consolidated result of operations</B>
</DIV>

<DIV align="left">
<A name="130"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Fiscal 2005 compared with fiscal 2004</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Summarized results of operations for fiscal 2005 and fiscal 2004 are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Change</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10">(<B>Millions of yen, except per share</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>amounts and percentage data)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;3,754,191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#043;8.3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;3,467,853</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">583,043</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;7.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">543,793</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes and minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">612,004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;10.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">552,116</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,096</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;11.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">343,344</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">432.94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;11.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">387.80</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">432.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;11.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">386.78</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Note: See
note of Item&nbsp;3A &#147;Selected Financial Data.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Sales</I>
</DIV>


<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s consolidated net sales in fiscal 2005 totaled Yen 3,754,191&nbsp;million. This represents
an 8.3% increase from the previous fiscal year, reflecting significant growth in sales of digital
cameras, color network digital MFDs and projection aligners.</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Overseas operations are significant to Canon&#146;s operating results and generated approximately
74% of total net sales in fiscal 2005. Such sales are denominated in the applicable local currency
and are subject to fluctuations in the value of the yen in relation to such other currencies.
Despite efforts to reduce the impact of currency fluctuations on operating results, including
localizing some manufacturing and procuring parts and materials from overseas suppliers, Canon
believes such fluctuations have had and will continue to have a significant effect on results of
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The average value of the yen in fiscal 2005 was Yen 110.58 to the U.S. dollar, and Yen 137.04
to the euro, representing a depreciation of 2% against both currencies, compared with the previous
year. These effects of foreign exchange rate fluctuations favorably impacted net sales by
approximately Yen 66,400&nbsp;million. Net sales denominated in foreign currency increased by
approximately Yen 41,500&nbsp;million in U.S. dollars, increased by Yen 16,300&nbsp;million in euro, and
increased by Yen 8,600&nbsp;million in other foreign currencies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Cost of sales</I>
</DIV>


<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost of sales principally reflects the cost of raw materials, parts and labor used by Canon in the
manufacture of its products. A portion of the raw materials used by Canon is imported or includes
imported materials. Such raw materials are subject to fluctuations in world market prices and
exchange rates that may affect Canon&#146;s cost of sales. Other components of cost of sales include
depreciation expenses from plants, maintenance expenses, light and fuel expenses and rent expenses.
The ratio of cost of sales to net sales for fiscal 2005, 2004 and 2003 was 51.5%, 50.6% and 49.7%,
respectively.</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Gross profit</I>
</DIV>


<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s gross profit in fiscal 2005 increased by 6.2% to Yen 1,819,043&nbsp;million from fiscal
2004. Despite such negative factors as escalating prices of raw materials and a severe price
competition, gross profit ratio for the year remained at high, with a decrease of 0.9 points
from the previous year, owing to cost reductions realized through ongoing production-reform and
procurement-reform efforts.</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Selling, general and administrative expenses and research and development expenses</I>
</DIV>


<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The major components of selling, general and administrative expenses are payroll, R&#038;D,
advertising expenses and other marketing expenses. Although R&#038;D expenses grew 4.1% from the
previous year to Yen 286,476&nbsp;million, keeping spending growth below the growth rate for net sales,
the selling, general and administrative expenses to net sales ratio improved 0.7 points. In
general, Canon maintains a high level of R&#038;D expenditure to strengthen its R&#038;D capabilities. R&#038;D
expenditures grew in fiscal 2005 from the previous year, resulting from increased R&#038;D activities.</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Operating profit</I>
</DIV>


<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating profit in fiscal 2005 increased by 7.2% to Yen 583,043&nbsp;million from fiscal 2004.
Operating profit in fiscal 2005 was 15.5% of net sales, compared with 15.7% in fiscal 2004.</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Other income (deductions)</I>
</DIV>


<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other income (deductions)&nbsp;improved by Yen 20,638&nbsp;million, attributable to an increase of
interest revenue, resulting from such factors as an increase in surplus funds accompanying the
improved balance sheet and a rise in interest rates in the United States, along with a decrease in
currency exchange losses.</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Income before income taxes and minority interests</I>
</DIV>


<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income before income taxes and minority interests in fiscal 2005 was Yen 612,004&nbsp;million, a
10.8% increase from fiscal 2004, and constituted 16.3% of net sales.</DIV>



<P align="center" style="font-size: 10pt">26
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Income taxes</I>
</DIV>


<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provision for income taxes increased by Yen 18,771&nbsp;million from fiscal 2004, primarily as a
result of the increase in income before income taxes and minority interests. The effective tax rate
during fiscal 2005 declined by 0.3% compared with fiscal 2004.</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Net income</I>
</DIV>


<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income in fiscal 2005 increased by 11.9% to Yen 384,096&nbsp;million, which exceeds the growth
rate of income before income taxes and minority interests. This represents a 10.2% return on net
sales.</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Product information
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon divides its businesses into three product groups: business machines, cameras and optical and
other products.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>The business machines product group </B>includes office imaging products, computer
peripherals and business information products.</TD>
</TR>

</TABLE>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="9%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Office imaging products include office network digital MFDs, color network digital MFDs,
office copying machines, personal-use copying machines and full-color copying machines.</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="9%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Computer peripherals include laser beam printers, inkjet printers, inkjet multifunction
peripherals and image scanners.</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="9%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Business information products include micrographic equipment, personal computers and
calculators.</TD>
</TR>

</TABLE>


<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>The cameras product group </B>includes SLR cameras, compact cameras, digital cameras and
digital video camcorders.</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>The optical and other products product group </B>includes steppers for
semiconductor chip production, mirror projection mask aligners used in the production of
LCDs, television broadcasting lenses and medical equipment.</TD>
</TR>

</TABLE>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective January&nbsp;2004, Canon has changed classification of product categories with regards to
information system business, which had been classified in &#147;Optical and other products,&#148; to
&#147;Business machines (Office imaging products)&#148; in order to better reflect the current relation with
those products. Accordingly, information for previous fiscal years has been reclassified to conform
with the current classification.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Sales by product</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s sales by product group are summarized as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Change</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>(Millions of yen, except percentage data)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Business machines:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Office imaging products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;1,153,240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#043;2.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;1,120,972</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Computer peripherals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,244,906</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;8.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,149,914</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Business information products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">-10.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,067</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total business machines</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,502,401</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;4.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,387,953</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cameras</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">879,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;15.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">763,079</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Optical and other products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">372,604</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;17.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">316,821</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;3,754,191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#043;8.3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;3,467,853</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of business machines, constituting 66.7% of consolidated net sales, increased 4.8%, to
Yen 2,502,401&nbsp;million in fiscal 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of office imaging products increased 2.9%, to Yen 1,153,240&nbsp;million. Demand for network
digital MFDs continues to shift from monochrome machines to color models, as well as towards
higher-end features. The Color imagingRunner(&#147;iR&#148;) C3170/2570 series, equipped with a new
high-speed image-processing chip, and the iR C3220/2620 series continued to sell well in both Japan
and European markets, as did the new high-speed iR C6870/5870 series models. Among monochrome
network digital MFDs, mid-level models such as the iR4570/3570/2870/2270 series contributed to
expanded sales, along with the iR6570/5570, featuring energy-saving performance and high
productivity, and the iR2020/2016 series, with enhanced networking features. Color office imaging
products accounted for 28% and 24% and monochrome office imaging products accounted for 56% and 62%
of office imaging products sales in fiscal 2005 and 2004, respectively. Sales of facsimiles and
information system business accounted for 16% and 14% of sales of office imaging products in both
fiscal 2005 and 2004, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of computer peripherals increased 8.3% to Yen 1,244,906&nbsp;million. Laser beam printers
enjoyed a year-on-year increase in unit sales, with color models growing more than 30% and
monochrome machines, particularly low-end models, also recording healthy growth. Sales in value
terms also rose despite the effect of the shift in market demand toward lower priced models. Inkjet
printers recorded an increase in unit sales of more than 10%, with the PIXMA iP3000/4000 and, in
markets outside of Japan, the PIXMA MP110/130 maintaining brisk sales. Additionally, newly
introduced models, including the PIXMA iP4200, the PIXMA iP1600 in overseas markets, and high-speed
all-in-one models such as the PIXMA MP500, contributed to a stronger product lineup, which also
fueled sales growth in value terms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of business information products decreased 10.9%, to Yen 104,255&nbsp;million in fiscal 2005,
mainly due to the intentional curtailing of personal computer sales in the domestic market.
</DIV>

<P align="center" style="font-size: 10pt">27


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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of cameras continued to achieve significant sales growth of 15.2%, totaling Yen 879,186
million. The continued strong demand for digital SLR cameras has fueled robust growth, with the
EOS DIGITAL REBEL XT, launched in the first half of 2005, and the EOS 5D, launched in the second
half, recording particularly strong sales along with continued healthy sales of the EOS 20D,
launched in the previous period. This, in turn, has led to expanded sales of interchangeable lenses
for SLR cameras. Sales of compact-model digital cameras also continued to expand steadily, with
healthy demand for the PowerShot SD400 and PowerShot A520, launched in the first half of 2005, as
well as the PowerShot SD550 and PowerShot SD450 models, introduced in the second half. As a
result, unit sales of digital cameras grew by more than 20% compared with the previous year.
Digital cameras accounted for 72% and 69% and conventional film cameras accounted for 17% and 16%
of camera sales in fiscal 2005 and 2004, respectively. In the field of digital video camcorders,
newly introduced Mini DV, DVD, and HDV models, including the Optura 600, the DC20/10, and the XL H1
registered strong performances. Video camcorders accounted for the remaining 11% and 15% of camera
sales in fiscal 2005 and 2004, respectively. Sales of cameras constituted 23.4% of consolidated net
sales in fiscal 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of optical and other products increased 17.6%, to Yen 372,604&nbsp;million. In the optical
and other products segment, demand for steppers, used in the production of semiconductors, has
continued to lag since the summer of 2004, resulting in a drop in the number of units sold and,
consequently, a decrease in sales value. Sales of aligners, however, which are used in the
production of LCD panels realized notable growth in terms of both volume and value owing to
increased investments by LCD manufacturers in response to the rapidly expanding LCD television
market. Additionally, the vacuum thin-film deposition and processing equipment produced by the
Company&#146;s newly consolidated subsidiaries contributed to expanded sales. Sales of optical and
other products constituted 9.9% of consolidated net sales in fiscal 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Sales by region</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A summary of net sales by region in fiscal 2005 and fiscal 2004 is provided below:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Change</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>(Millions of yen, except percentage data)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;856,205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#043;0.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;849,734</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Americas</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,145,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;8.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,059,425</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Europe</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,181,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;8.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,093,295</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">570,778</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;22.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">465,399</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;3,754,191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#043;8.3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;3,467,853</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 6pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>
 <TR valign="top">
    <TD nowrap align="left">Note: This summary of net sales by region of destination is determined by the location of the customer.</TD>

    <TD>&nbsp;</TD>

</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A geographical analysis indicates that net sales in fiscal 2005 increased in every region.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In Japan, net sales increased by 0.8% in fiscal 2005 from fiscal 2004. The results were mainly
attributable to increased sales of office imaging products, computer peripherals, and digital
cameras. Color network digital MFDs which include the Color
imageRUNNER(&#147;iR&#148;) C3170/2570 series,
equipped with a new high-speed image-processing chip, and the iR C3220/2620 series lineup, have
contributed to increased sales of office imaging products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the Americas, net sales increased by 5.7% on a local currency basis, mainly due to
increased sales of digital cameras, and laser beam printers. Sales of digital cameras experienced
continued strong demand and benefited from the effect of newly-launched products such as
PowerShot-series models and Canon&#146;s digital SLR. On a yen basis, after accounting for the
appreciation of the yen against the U.S. dollar, net sales in the Americas increased by 8.2%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In Europe, net sales increased by 6.1% on a local currency basis mainly due to increased sales
of digital cameras and laser beam printers. On a yen basis, after accounting for the depreciation
of the yen against the euro, net sales in Europe grew 8.0% in fiscal 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales in other areas increased by 22.6% on a yen basis in fiscal 2005, reflecting overall
sales growth, particularly in digital cameras and semiconductor equipment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Operating profit by product</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating profit for business machines in fiscal 2005 increased Yen 20,944&nbsp;million to Yen
542,028&nbsp;million. The gross profit ratio remained at a previous year level, due to cost reduction
efforts, and the sales-to-expense ratio declined, contributing to an increase in operating profit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating
profit for cameras increased Yen 42,908&nbsp;million to Yen 173,706 million. The gross
profit ratio improved, due to an increase in unit sales of digital cameras.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Optical and other products in fiscal 2005 increased Yen 9,988&nbsp;million to Yen 38,820&nbsp;million.
The gross profit ratio increased compared to the previous year, due to an increase in sales of
aligners.
</DIV>

<P align="center" style="font-size: 10pt">28
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="131"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Fiscal 2004 compared with fiscal 2003</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Summarized results of operations for fiscal 2004 and fiscal 2003 are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Change</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10">(<B>Millions of yen, except per share</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>amounts and percentage data)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,467,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#043;8.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,198,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">543,793</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;19.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">454,424</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes and minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">552,116</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;23.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">448,170</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">343,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;24.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">275,730</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">387.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;23.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">313.81</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">386.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;24.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">310.75</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Note: See
note of Item&nbsp;3A &#147;Selected Financial Data.&#148;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Sales</I>
</DIV>


<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s consolidated net sales in fiscal 2004 totaled Yen 3,467,853&nbsp;million. This represents
an 8.4% increase from the previous fiscal year, reflecting significant growth in sales of digital
cameras, color network digital MFDs and semiconductor-production equipment.</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Overseas operations are significant to Canon&#146;s operating results and generated approximately
73% of total net sales in fiscal 2004. Such sales are denominated in the applicable local currency
and are subject to fluctuations in the value of the yen in relation to such other currencies.
Despite efforts to reduce the impact of currency fluctuations on operating results, including
localizing some manufacturing and procuring parts and materials from overseas suppliers, Canon
believes such fluctuations have had and will continue to have a significant effect on results of
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The average value of the yen in fiscal 2004 was Yen 108.12 to the U.S. dollar, and Yen 134.57
to the euro, representing an appreciation of 7% against the U.S. dollar, and a depreciation of 3%
against the euro, compared with the previous year. These effects of foreign exchange rate
fluctuations unfavorably impacted net sales by approximately Yen 57,000&nbsp;million. Net sales
denominated in foreign currency decreased by approximately Yen 77,700&nbsp;million in U.S. dollars,
increased by Yen 20,300&nbsp;million in euro, and increased by Yen 400&nbsp;million in other foreign
currencies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Cost of sales</I>
</DIV>


<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost of sales principally reflects the cost of raw materials, parts and labor used by Canon in the
manufacture of its products. A portion of the raw materials used by Canon is imported or includes
imported materials. Such raw materials are subject to fluctuations in world market prices and
exchange rates that may affect Canon&#146;s cost of sales. Other components of cost of sales include
depreciation expenses from plants, maintenance expenses, light and fuel expenses and rent expenses.
The ratio of cost of sales to net sales for fiscal 2004 and 2003 was 50.6% and 49.7%, respectively.</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Gross profit</I>
</DIV>


<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s gross profit in fiscal 2004 increased by 6.5% to Yen 1,713,343&nbsp;million from fiscal
2003. Despite ongoing efficiency enhancements in production during fiscal 2004 and the timely
launch of competitive new products, the gross profit ratio decreased 0.9% from the previous year to
49.4%, mainly due to severe price competition and the appreciation of the yen against the U.S.
dollar.</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Selling, general and administrative expenses and research and development expenses</I>
</DIV>


<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The major components of selling, general and administrative expenses are payroll, R&#038;D,
advertising expenses and other marketing expenses. Selling, general and administrative expenses in
fiscal 2004 increased by 1.3%, as compared with fiscal 2003, to Yen 1,169,550&nbsp;million in fiscal
2004. This increase primarily reflects an increase in R&#038;D expenditures by 6.2% to Yen 275,300
million, reflecting management&#146;s policy to maintain a high level of R&#038;D expenditure to strengthen
Canon&#146;s R&#038;D capabilities and an increase in advertising and other marketing expense by 11.5% to Yen
111,770&nbsp;million, reflecting management&#146;s policy to strengthen Canon&#146;s corporate and brand image.
This increase was partially offset by a decrease in other selling, general and administrative
expenses and a Yen 17,141&nbsp;million gain realized from the return to the Japanese Government of a
portion of the Employees&#146; Pension Funds (EPF)&nbsp;of the Company and certain of its subsidiaries in
Japan.</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Operating profit</I>
</DIV>


<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating profit in fiscal 2004 increased by 19.7% to Yen 543,793&nbsp;million from fiscal 2003.
Operating profit in fiscal 2004 was 15.7% of net sales, compared with 14.2% in fiscal 2003.</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Other income (deductions)</I>
</DIV>


<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other income (deductions)&nbsp;improved by Yen 14,577&nbsp;million, attributable to gains from sales of
stock of subsidiary companies&#146; shares which totaled Yen 9,082&nbsp;million, along with a decrease in
currency exchange losses and improved equity gains (losses)&nbsp;of affiliated companies.</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Income before income taxes and minority interests</I>
</DIV>


<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income before income taxes and minority interests in fiscal 2004 was Yen 552,116&nbsp;million, a 23.2%
increase from fiscal 2003, and constituted 15.9% of net sales.</DIV>



<P align="center" style="font-size: 10pt">29
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Income taxes</I>
</DIV>


<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provision for income taxes increased by Yen 31,361&nbsp;million from fiscal 2003, primarily as a
result of the increase in income before income taxes and minority interests. The effective tax rate
during fiscal 2004 declined by 1.2% compared with fiscal 2003.</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Net income</I>
</DIV>


<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income in fiscal 2004 increased by 24.5% to Yen 343,344&nbsp;million, which exceeds the growth
rate of income before income taxes and minority interests due primarily the decrease in the
effective tax rate during the period. This represents a 9.9% return on net sales.</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Product information</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On a consolidated basis, Canon divides its businesses into three product groups: business
machines, cameras and optical and other products.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>The business machines product group </B>includes office imaging products, computer peripherals
and business information products.</TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="9%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Office imaging products include office network digital MFDs, color network digital
MFDs, office copying machines, personal-use copying machines and full-color copying
machines.</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="9%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Computer peripherals include laser beam printers, inkjet printers, inkjet multifunction
peripherals and image scanners.<BR></TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="9%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Business information products include micrographic equipment, personal computers and
calculators.</TD>
</TR>

</TABLE>


<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>The cameras product group </B>includes single lens reflex (&#147;SLR&#148;) cameras, compact cameras,
digital cameras and digital video camcorders.</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>The optical and other products product group </B>includes steppers for semiconductor chip
production, mirror projection mask aligners used in the production of LCDs, television
broadcasting lenses and medical equipment.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective January&nbsp;2004, Canon has changed the classification of its information system
business. The information system business which had been included in &#147;Optical and other products&#148;,
was reclassified as &#147;Business machines (Office imaging products)&#148; in order to better reflect its
relation with the other products of the business machines group. Accordingly, information for
previous fiscal years has been reclassified to conform with the current classification.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Sales by product</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s sales by product group are summarized as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Change</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>(Millions of yen, except percentage data)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Business machines:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Office imaging products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;1,120,972</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#043;3.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;1,081,995</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Computer peripherals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,149,914</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;5.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,089,312</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Business information products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,067</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">-5.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">123,493</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total business machines</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,387,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;4.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,294,800</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cameras</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">763,079</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;16.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">653,540</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Optical and other products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">316,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;26.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">249,732</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,467,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#043;8.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,198,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of business machines, constituting 69% of consolidated net sales, increased 4.1%, to Yen
2,387,953&nbsp;million in fiscal 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of office imaging products increased 3.6%, to Yen 1,120,972&nbsp;million<B>. </B>Demand for network
digital MFDs continues to shift from monochrome machines to color models, as well as towards
higher-end features. The Color imageRUNNER(iR) C3200/iRC3200N recorded strong sales in both the
domestic Japanese and overseas markets. The iRC3100 and the high end model iRC6800, introduced in
Japan in the second half of fiscal 2003, were also launched in Europe and the United States in the
first half of fiscal 2004 and have also recorded strong sales. The iRC3220/iRC3220N, which succeeds
the iRC3200, and the iRC2620/iRC2620N were launched in September&nbsp;2004 and have also recorded strong
sales. 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. Color office imaging
products accounted for 24% and 20% and monochrome office imaging products accounted for 62% and 67%
of office imaging products sales in fiscal 2004 and 2003, respectively. Sales of facsimiles and
information system business accounted for 14% and 13% of sales of office imaging products in both
fiscal 2004 and 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of computer peripherals increased 5.6% to Yen 1,149,914&nbsp;million. Despite the effects of
the yen&#146;s appreciation against the U.S. dollar and a shift in demand toward lower priced models in
the monochrome and color segment, laser beam printer sales substantially increased due to an
increase in sales of color models. Inkjet printers recorded an approximately 20% increase in unit
sales, primarily as a result of sales of the PIXMA iP3100 and iP4100 models, especially in Japan
and Europe, and the PIXMA MP700 and MultiPASS MP370 high-speed multifunction systems. The adverse
effect of severe price competition on sales of computer peripherals was more than offset by a rise in unit sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of business information products decreased 5.2%, to Yen 117,067&nbsp;million in fiscal 2004,
mainly due to the intentional curtailing of personal computer sales in the domestic market.
</DIV>

<P align="center" style="font-size: 10pt">30
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of cameras continued to achieve significant sales growth of 16.8%, totaling Yen 763,079
million. 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 for
fiscal 2004, including the PowerShot S500 Digital ELPH and PowerShot A75. Canon&#146;s digital SLR
cameras also continued to enjoy robust growth, bolstered by strong sales of the EOS Digital Rebel,
and the EOS 20D which is successor of the EOS 10D. As a result, unit sales of digital cameras grew
by nearly 60% compared with the previous year. Digital cameras accounted for 69% and 61% and
conventional film cameras accounted for 16% and 21% of camera sales in fiscal 2004 and 2003,
respectively. Video camcorders accounted for the remaining 15% and 18% of camera sales in fiscal
2004 and 2003, respectively. In the field of digital video camcorders, new models such as the
Optura 500/400, Elura 70/65/60 and Optura 40/30 achieved favorable sales during fiscal 2004. Sales
of cameras constituted 22% of consolidated net sales in fiscal 2004, an increase of 2% from fiscal
2003, primarily due to increased sales of digital cameras.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of optical and other products increased by 26.9%, to Yen 316,821&nbsp;million. Sales of
aligners for the production of LCDs realized notable growth as the PC monitor industry continued to
shift from cathode-ray tube (CRT)&nbsp;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. Sales of optical and other products constituted 9% of
consolidated net sales in fiscal 2004, an increase of 1% from fiscal 2003, primarily due to
increased sales of aligners for LCDs and steppers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Sales by region</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A summary of net sales by region in fiscal 2004 and fiscal 2003 is provided below:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Change</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>(Millions of yen, except percentage data)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">849,734</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#043;6.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">801,400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Americas</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,059,425</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;1.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,045,166</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Europe</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,093,295</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;12.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">969,042</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">465,399</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#043;21.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">382,464</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;3,467,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#043;8.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;3,198,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Note: This summary of net sales by region of destination is determined by the location of the
customer.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A geographical analysis indicates that net sales in fiscal 2004 increased in every region.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In Japan, net sales increased by 6.0% in fiscal 2004 from fiscal 2003. The results were mainly
attributable to increased sales of office imaging products and digital cameras. Color network
digital MFDs, which include the Color imageRUNNER(&#147;iR&#148;) C3200/iRC3200N, Canon&#146;s first color
offering in the powerful imageRUNNER-series lineup, have contributed to increased sales of office
imaging products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the Americas, net sales increased by 8.3% on a local currency basis, mainly due to
increased sales of digital cameras, and laser beam printers. Sales of digital cameras experienced
continued strong demand and benefited from the effect of newly-launched products such as
PowerShot-series models and Canon&#146;s digital SLR. On a yen basis, after accounting for the
appreciation of the yen against the U.S. dollar, net sales in the Americas increased by 1.4%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In Europe, net sales increased by 11.6% on a local currency basis mainly due to increased
sales of digital cameras, Color network digital MFDs and laser beam printers. On a yen basis, after
accounting for the depreciation of the yen against the euro, net sales in Europe grew 12.8% in
fiscal 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales in other areas increased by 21.7% on a yen basis in fiscal 2004, reflecting overall
sales growth, particularly in digital cameras and semiconductor equipment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Operating profit by product</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating profit for business machines in fiscal 2004 increased Yen 35,519&nbsp;million to Yen
521,084&nbsp;million. Despite the effects of the stronger yen, the gross profit ratio (ratio of gross
profit to net sales) remained at prior year levels, due to cost reduction efforts, and the
sales-to-expense ratio declined, contributing to an increase in operating profit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating profit for cameras increased Yen 4,480&nbsp;million to Yen 130,798&nbsp;million. Despite the
negative effects of the stronger yen and price competition, along with the impact of increased
advertising and sales-promotion spending, an increase in unit sales of digital cameras contributed
to improved profitability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Optical and other products generated operating profits of Yen 28,832&nbsp;million in fiscal 2004,
as compared to losses of Yen 9,883&nbsp;million in fiscal 2003, due to a significant increase in sales
of aligners and steppers.
</DIV>

<P align="center" style="font-size: 10pt">31
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Segment information by product and geographic area</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Segment information by product and by geographic area for the years ended December&nbsp;31, 2005,
2004 and 2003 are shown below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">The following table provides segment information by product:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18" style="border-bottom: 1px solid #000000"><B>As of/for the year ended December 31, 2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Optical</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Business</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>and other</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Corporate and</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>machines</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Cameras</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>products</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Eliminations</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Consolidated</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unaffiliated customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;2,502,401</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;879,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;372,604</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;3,754,191</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">158,114</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(158,114</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,502,401</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">879,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">530,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(158,114</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,754,191</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating cost and expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,960,373</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">705,480</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">491,898</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">13,397</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,171,148</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">542,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">173,706</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">38,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(171,511</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">583,043</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,427,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">480,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">517,527</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,617,792</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,043,553</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">123,037</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,662</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,011</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">225,941</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital expenditure</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">201,887</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,678</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,955</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,264</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">383,784</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18" style="border-bottom: 1px solid #000000"><B>As of/for the year ended December 31, 2004</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Optical</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Business</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>and other</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Corporate and</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>machines</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Cameras</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>products</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Eliminations</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Consolidated</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unaffiliated customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;2,387,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;763,079</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;316,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;3,467,853</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">138,419</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(138,419</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,387,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">763,079</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">455,240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(138,419</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,467,853</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating cost and expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,866,869</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">632,281</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">426,408</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,498</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,924,060</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">521,084</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">130,798</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">28,832</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(136,921</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">543,793</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,338,817</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">399,207</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">418,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,430,579</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,587,021</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115,830</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,895</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,087</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,692</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital expenditure</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">134,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,783</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,264</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,555</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">318,730</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->

<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18" style="border-bottom: 1px solid #000000"><B>As of/for the year ended December 31, 2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Optical</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Business</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>and other</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Corporate and</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>machines</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Cameras</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>products</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Eliminations</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Consolidated</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unaffiliated customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;2,294,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;653,540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;249,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&nbsp;3,198,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">132,389</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(132,389</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,294,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">653,540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">382,121</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(132,389</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,198,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating cost and expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,809,235</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">527,222</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">392,004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,743,648</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">485,565</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">126,318</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(9,883</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(147,576</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">454,424</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,266,881</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">317,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">412,117</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,185,478</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,182,148</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">118,806</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,276</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,810</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">183,604</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital expenditure</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,961</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">210,038</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">Notes:

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>General corporate expenses of Yen 171,522&nbsp;million, Yen 136,929&nbsp;million and Yen 147,616
million in the years ended December&nbsp;31, 2005, 2004 and 2003, respectively, are included in
&#147;Corporate and Eliminations.&#148; For the fiscal year ended December&nbsp;31, 2004, a gain of Yen
17,141&nbsp;million is also included, which relates to the Transfer to the Japanese Government of
the Substitutional Portion of Employee Pension Fund Liabilities.</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Corporate assets of Yen 1,239,255&nbsp;million, Yen 1,430,599&nbsp;million and Yen 1,185,506&nbsp;million as
of December&nbsp;31, 2005, 2004 and 2003, respectively, which mainly consist of cash and cash
equivalents, marketable securities, investments and corporate properties, are included in
&#147;Corporate and Eliminations.&#148;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The segments are defined under Japanese GAAP. In grouping of segment information by product,
Japanese GAAP requires that consideration be given to similarities of product types and
characteristics, manufacturing methods, sales markets, and other factors that are similar.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">32


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table provides segment information by geographic area:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="22" style="border-bottom: 1px solid #000000"><B>As of/for the year ended December 31, 2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Corporate and</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Japan</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Americas</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Europe</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Others</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Eliminations</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Consolidated</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="22"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unaffiliated customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">979,748</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,139,784</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,178,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">455,987</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,754,191</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,046,173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,424</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,206</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">646,530</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(2,702,333</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;3,025,921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;1,147,208</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;1,180,878</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;1,102,517</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&nbsp;(2,702,333</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;3,754,191</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating cost and expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,362,019</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,110,415</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,147,658</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,071,155</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,520,099</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,171,148</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">663,902</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">36,793</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">33,220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">31,362</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(182,234</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">583,043</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">2,419,012</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">406,101</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">569,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">312,472</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">336,218</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,043,553</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="22" style="border-bottom: 1px solid #000000"><B>As of/for the year ended December 31, 2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Corporate and</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Japan</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Americas</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Europe</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Others</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Eliminations</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Consolidated</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="22"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unaffiliated customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">919,153</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,057,066</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,090,712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">400,922</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,467,853</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,882,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,863</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,161</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">591,677</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(2,487,674</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;2,802,126</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;1,065,929</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;1,094,873</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;992,599</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&nbsp;(2,487,674</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;3,467,853</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating cost and expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,206,141</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,025,628</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,071,552</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">965,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,344,341</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,924,060</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">595,985</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">40,301</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">23,321</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">27,519</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(143,333</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">543,793</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,793,679</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">341,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">533,865</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">271,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">646,295</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,587,021</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="22" style="border-bottom: 1px solid #000000"><B>As of/for the year ended December 31, 2003</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Corporate and</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Japan</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Americas</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Europe</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Others</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Eliminations</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Consolidated</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="22"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unaffiliated customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">856,851</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,044,998</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">968,938</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">327,285</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,198,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,662,172</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,101</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">503,119</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(2,177,253</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;2,519,023</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;1,053,099</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;972,799</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;830,404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&nbsp;(2,177,253</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;3,198,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating cost and expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,025,442</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">998,492</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">946,282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">806,281</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,032,849</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,743,648</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">493,581</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">54,607</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">26,517</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">24,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(144,404</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">454,424</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,600,726</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">306,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">546,625</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">249,755</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">478,902</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,182,148</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">Notes:
<div>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>General corporate expenses of Yen 171,522&nbsp;million, Yen 136,929&nbsp;million and Yen 147,616
million in the years ended December&nbsp;31, 2005, 2004 and 2003, respectively, are included in
&#147;Corporate and Eliminations.&#148; For the fiscal year ended December&nbsp;31, 2004, a gain of Yen
17,141&nbsp;million is also included, which relates to the Transfer to the Japanese Government of
the Substitutional Portion of Employee Pension Fund Liabilities.</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Corporate assets of Yen 1,239,255&nbsp;million, Yen 1,430,599&nbsp;million and Yen 1,185,506&nbsp;million as
of December&nbsp;31, 2005, 2004 and 2003, respectively, which
mainly consist of cash and cash equivalents, marketable securities, investments and corporate
properties, are included in &#147;Corporate and Eliminations.&#148;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Segment information by geographic area is determined by the location of the Company or its
relevant subsidiary making the sale. The segments are defined under Japanese GAAP. In grouping
of segment information by geographic area, Japanese GAAP requires that consideration be given
to geographic proximity, as well as similarities of economic activities, interrelationships of
business activities and other similar factors.</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">33
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>
<DIV align="left">
<A name="132"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Foreign operations and foreign currency transactions</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s marketing activities are performed by subsidiaries in various regions in local
currencies, while the cost of sales is generally in yen. Given Canon&#146;s current operating structure,
appreciation of the yen has a negative impact on net sales and the gross profit ratio. To reduce
the financial risks from changes in foreign exchange rates, Canon utilizes derivative financial
instruments, which are comprised principally of forward currency exchange contracts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The return on foreign operation sales is usually lower than that from domestic operations
because foreign operations consist mainly of marketing activities. Return on foreign operation
sales is calculated by dividing net income of foreign subsidiaries, after factoring in
consolidation adjustments between foreign subsidiaries, by net sales of foreign subsidiaries.
Marketing activities are generally less profitable than production activities, which are mainly
conducted by the Company and its domestic subsidiaries. The returns on foreign operation sales in
fiscal 2005, 2004 and 2003 were 3.0%, 2.8% and 3.2%, respectively. This compares with returns of
10.2%, 9.9% and 8.6% on total operations for the respective years.
</DIV>
<DIV align="left">
<A name="133"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Recent developments</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon acquired all of the issued and outstanding shares of ANELVA Corporation, which possesses
advanced vacuum technology, and made it into a subsidiary as of September&nbsp;30, 2005. ANELVA
Corporation&#146;s corporate name was changed to Canon ANELVA Corporation as of October&nbsp;1, 2005. By
making Canon ANELVA Corporation a subsidiary of the Company, Canon aims to promote the in-house
production of manufacturing equipment which Canon believes is indispensable to differentiate Canon
products from products of its competitors in various fields, including Canon&#146;s new display
business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon acquired the shares of NEC Machinery Corporation (listed on the Second Section of the
Osaka Securities Exchange), which possesses advanced automation technologies, through a tender
offer and made it into a subsidiary as of October&nbsp;19, 2005. NEC Machinery Corporation&#146;s corporate
name was changed to Canon Machinery Inc. as of December&nbsp;17, 2005. By making Canon Machinery Inc. a
subsidiary of the Company, Canon aims to make further advance in its production reform activities,
including the automation of production processes for Canon products.
</DIV>
<DIV align="left">
<A name="134"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>B.&nbsp;Liquidity and capital resources</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents in fiscal 2005 increased Yen 117,179&nbsp;million to Yen 1,004,953
million, compared with Yen 887,774&nbsp;million in fiscal 2004 and Yen 690,298&nbsp;million in fiscal 2003.
Canon&#146;s cash and cash equivalents are typically denominated in Japanese yen, with the remainder
denominated in foreign currencies such as the U.S. dollar.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by operating activities in fiscal 2005 increased by Yen 44,149&nbsp;million from
the previous year to Yen 605,678&nbsp;million, reflecting the substantial growth in sales and increased
cash proceeds from sales, combined with a substantial increase in net income and an improvement in
working capital. Cash flow from operating activities consisted of the following components: the
major component of Canon&#146;s cash inflow is cash received from customers, while the major components
of Canon&#146;s cash outflow are payments for parts and materials, selling, general and administrative
expenses, and income taxes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For fiscal 2005, cash inflow from cash received from customers increased, due to the increase
in net sales. This increase in cash inflow was within the range of the increase in net sales, as
there were no significant changes in Canon&#146;s collection rates. Cash outflow for payments for parts
and materials also increased, as a result of an increase in net sales. However, this increase was
less than the increase in net sales, due to the effects of cost reduction. Cost reduction reflects
a decline in unit prices of parts and raw materials, as well as a streamlining of the process of
using these parts and materials through promoting efficiency in operations. Cash outflow for
payroll payments increased, due to the increase in the number of employees. The employees in the
Asian region increased, due to the expansion of production in the regions. Cash outflow for
payments for selling, general and administrative expenses increased, but the increase was within
the range of the increase in net sales, due to cost-cutting efforts. Cash outflow for payments of
income taxes increased, due to the increase in taxable income.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in investing activities in fiscal 2005 was Yen 401,141&nbsp;million, compared with
Yen 252,967&nbsp;million in fiscal 2004 and Yen 199,948&nbsp;million in fiscal 2003, consisting primarily of
capital expenditures. Capital expenditures in fiscal 2005 totaled Yen 383,784&nbsp;million, which was
used mainly to expand production capabilities in Japan and overseas regions and to strengthen the
Company&#146;s R&#038;D-related infrastructure. As a result, free cash flow, or cash flow from operating
activities minus cash flow from investing activities, totaled Yen 204,537&nbsp;million for fiscal 2005
as compared to Yen 308,562&nbsp;million for fiscal 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in financing activities totaled Yen 93,939&nbsp;million in fiscal 2005, mainly
resulting from a decrease in loan repayments accompanying the company&#146;s strengthened financial
position despite a large increase in the dividend payout. The Company paid dividends in fiscal 2005
of Yen 100 per share, which was an increase of Yen 35 per share over the prior year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon seeks to meet its liquidity and capital requirements principally with cash flow from
operations. Consistent with this objective, Canon continued to reduce its reliance on external
funding for capital investments in favor of relying upon internally generated cash flows. This
approach is supplemented with group-wide treasury and cash management activities undertaken at the
parent company level. Canon believes that its working capital is sufficient for its present
requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To the extent Canon relies on external funding for its liquidity and capital requirements, it
generally has access to various funding sources, including issuance of additional share capital,
long-term debt or short-term loans. While Canon has been able to obtain funding from its
traditional financing sources and from the capital markets, and believes it will continue to be
able to do so in the future, there can be no assurance that adverse economic or other conditions
will not affect Canon&#146;s liquidity or long-term funding in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Short-term loans (including current portion of long-term debt) amounted to Yen 5,059&nbsp;million
at December&nbsp;31, 2005 compared to Yen 9,879&nbsp;million at December&nbsp;31, 2004. Long-term debt (excluding
their current portions) amounted to Yen 27,082&nbsp;million at December&nbsp;31, 2005 compared to Yen 28,651
million at December&nbsp;31, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s long-term debt generally consists of secured or partially-secured term loans from
banks, bearing interest at fixed rates, lease obligations, as well as
fixed-rate notes and convertible debentures which Canon has issued in the domestic market with
original maturities of ten to fifteen years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to facilitate access to global capital markets, Canon obtains credit ratings from two
rating agencies, Moody&#146;s Investors Services, Inc. (&#147;Moody&#146;s&#148;) and Standard and Poor&#146;s Rating
Services (&#147;S&#038;P&#148;). In addition, Canon maintains a rating from Rating and Investment Information,
Inc. (&#147;R&#038;I&#148;), a rating agency in Japan, for access to the Japanese capital market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, Canon&#146;s debt ratings are: Moody&#146;s: Aa2 (long-term); S&#038;P: AA
(long-term), A-1&#043; (short-term); and R&#038;I: AA&#043; (long-term). Canon does not have any rating downgrade
triggers that would accelerate the maturity of a material amount of its debt. A downgrade in
Canon&#146;s credit ratings or outlook could, however, increase the cost of its borrowings.
</DIV>

<P align="center" style="font-size: 10pt">34
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capital expenditure in fiscal 2005 amounted to Yen 383,784&nbsp;million compared with Yen 318,730
million in fiscal 2004 and Yen 210,038&nbsp;million in fiscal 2003. In fiscal 2005, capital expenditures
were mainly used to expand production capabilities in both domestic and overseas regions, and to
bolster the Company&#146;s R&#038;D-related infrastructure. In addition, Canon has been continually investing
in tools and dies for business machines, in which the amount invested is generally the same each
year. For fiscal 2006, Canon projects its capital expenditures will be approximately Yen 465,000
million. The capital expenditures include investments in new production plants and new facilities
of Canon.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employer contributions to Canon&#146;s worldwide defined benefit pension plans were Yen 40,059
million in fiscal 2005, Yen 31,018&nbsp;million in fiscal 2004, Yen 29,944&nbsp;million in fiscal 2003.
During fiscal 2006, Canon expects to make cash contributions of approximately Yen 45,352&nbsp;million to
its defined benefit pension plans.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Working capital in fiscal 2005 increased Yen 130,954&nbsp;million, to Yen 1,379,941&nbsp;million,
compared with Yen 1,248,987&nbsp;million in fiscal 2004 and Yen 1,103,474&nbsp;million in fiscal 2003. This
increase was primarily a result of an increase in cash and cash equivalents. Canon believes its
working capital will be sufficient for its requirements for the foreseeable future. Canon&#146;s capital
requirements are primarily dependent on management&#146;s business plans regarding the levels and timing
of capital expenditures and investments. The working capital ratio (ratio of current assets to
current liabilities) for fiscal 2005 was 2.28 compared to 2.27 for fiscal 2004 and 2.33 for fiscal
2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Return on assets (Net income divided by the average of total assets as of December&nbsp;31, 2005, 2004
and 2003) recorded 10.1% in fiscal 2005, compared to 10.1% in fiscal 2004 and 9.0% in fiscal 2003.
Return on stockholders&#146; equity was 16.0% in fiscal 2005 compared with 16.8% in fiscal 2004 and
15.9% in fiscal 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Debt to total assets ratio was 0.8%, 1.1% and 3.1% as of December&nbsp;31, 2005, 2004 and 2003,
respectively. Canon had short-term loans and long-term debt of Yen 32,141&nbsp;million as of December
31, 2005, Yen 38,530&nbsp;million as of December&nbsp;31, 2004 and Yen 98,396&nbsp;million as of December&nbsp;31,
2003.
</DIV>
<DIV align="left">
<A name="135"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>C.&nbsp;Research and development, patents and licenses</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Year 2005 marks the final year of Phase II of the Excellent Global Corporation Plan, which started
in 2001. The plan aims to guide Canon to the No.1 position worldwide in all core business areas and
to build on its R&#038;D capabilities to continually create new businesses. While working to bring Phase
II to a successful conclusion, Canon is also making thorough preparations to pursue sound growth,
its new target for Phase III, which begins in 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With respect to its R&#038;D goals, Canon formulated a vision, which is to create a borderless
environment between people and devices where images and information are exchanged in a way that
lets us live and work the way we want, virtually anytime, anywhere. Toward the realization of its
vision, Canon has accelerated the development and commercialization of display devices. In
particular, Canon has developed SED devices with the aim of mass production at SED Inc.,
established in 2004. In addition, Canon has strengthened its R&#038;D of such items as projectors and
organic light-emitting diodes (&#147;<I>OLEDs</I>&#148;). Furthermore, Canon continues to promote activities giving
rise to its next-generation businesses pursuing its search for new business domains, as well as to
reinforce its R&#038;D infrastructure.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In regard to its R&#038;D efficiencies, Canon has utilized of 3D-CAD systems, in order to
accelerate product development and curtail costs. Moreover, Canon enhanced and evolved its
simulation, measurement and analysis technologies, introducing a high-performance cluster computer
and other leading-edge facilities in 2005. As such, Canon has succeeded in greatly reducing the
need for prototypes, dramatically lowering costs and shortening development lead times.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon has R&#038;D centers worldwide, including the USA, that closely collaborate in their R&#038;D
activities. Some regional R&#038;D centers conduct basic research into technology, and others apply
their expertise to develop new products and businesses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s R&#038;D activities are conducted in the following four organizations:
</DIV>


<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Core Technology Development Headquarters (where component engineering and base
technology R&#038;D, such as optics technology, nanotechnology and production engineering, is
conducted)</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Leading-Edge Technology Development Headquarters (where most advanced technology
R&#038;D, aiming to create new technological capabilities, is conducted)</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Platform Technology Development Headquarters (where platform technology R&#038;D, such
as system Large Scale Integration (&#147;LSI&#148;) chips, network technology and visual information
technology, is conducted)</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Device Technology Development Headquarters (where key device R&#038;D, such as for
semiconductor devices, is conducted)</TD>
</TR>

</TABLE>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon had R&#038;D expenditures of Yen 286,476&nbsp;million in fiscal 2005, Yen 275,300&nbsp;million in
fiscal 2004 and Yen 259,140&nbsp;million in fiscal 2003. The ratios of R&#038;D expenditure to total net
sales for fiscal 2005, 2004 and 2003 were 7.6%, 7.9% and 8.1%, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon believes that new products protected by seminal patents will not easily allow
competitors to catch up with, and have advantages in establishing standards in the market and the
industry. The United States Patent and Trademark Office announced that Canon obtained the
second-greatest number of private sector patents in 2005. This achievement marks Canon&#146;s fourteenth
consecutive year as one of the top three patent-receiving private-sector organizations.
</DIV>

<P align="center" style="font-size: 10pt">35
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="136"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>D.&nbsp;Trend information</B>
</DIV>
<DIV align="left">
<A name="137"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Trend information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through Phase I (1996 to 2000) and Phase II (2001 to 2005) of its &#147;Excellent Global
Corporation Plan,&#148; the Canon Group pursued total optimization. Under the policy of putting profits
ahead of sales, we pushed forward selection and concentration measures and, amid ongoing product
digitalization, worked to enhance our product competitiveness and establish corporate structure for
high profitability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The business environment the Canon Group will face in the future will likely be characterized
by ongoing economic globalization against the background of stable economic growth at the global
level, as well as further adoption of broadband network and explosive growth of the digital imaging
business sector.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Viewing these conditions as a business opportunity, the Canon Group will continuously try to
boldly apply the operational, technological, personnel, financial and other business resources it
has built up in ways that make further sound growth possible. Toward that end, we have formulated a
new five-year plan &#151; Phase III (2006 to 2010) of our &#147;Excellent Global Corporation Plan.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chief among the priority strategies contained in this plan is making all of our current core
businesses the overwhelming No.1 position and establishing our display technologies as businesses,
a major new business for the Canon Group. And we aim to review our production systems in Japan
through steps like the introduction and promotion of high-productivity automated systems, and we
will establish new production systems to sustain international competitiveness. We will also
expand our business operations through diversification and establish a Three Regional Headquarters
System based in Japan, the U.S. and Europe, identify new business domains and accumulate the
required technologies. Furthermore, we will also focus on nurturing strong individuals promoting
these everlasting corporate reforms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;By forcefully advancing these priority strategies, the Canon Group aims to create business
operations that can prosper in perpetuity and make us a truly excellent global corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Business machines segment</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Office imaging products
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the office imaging products segment, it has become more important to provide added value in
the form of networking, integration, color printing, and multifunction models. Also, in addition to
the mid segment products for office market which enjoys steady growth, Canon expects that the
market of higher-end models and low-end multifunction models will expand as well. The market for
color digital devices continued to grow rapidly, and sales of monochrome digital MFDs were stable,
reflecting the market trend shifting from single-function to multifunction. Recently, there has
been a new, printer-based MFP market created by other printer vendors as they seek to enter the
copier and MFD market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To maintain and enhance a competitive edge and to meet more sophisticated customer demands,
Canon is strengthening its marketing capabilities by reinforcing its hardware and software product
lineups and by improving functionality. In 2005, Canon strengthened the product lineups of its
color digital devices in addition to its existing full line of monochrome machines and maintained
its market share by executing business strategies in line with the current market trend.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While competitors seek to transfer manufacturing facilities to China, Canon regards its
manufacturing bases in Japan important, in order to reduce total cost, through strengthening and
reinforcing its technology, in particular through the collaboration of its R&#038;D, manufacturing and
quality management divisions. In fiscal 2005, Canon established a new global mother factory in
Toride, to achieve the above-mentioned goal.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Computer peripheral products
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The inkjet printer market continues to grow steadily. Canon expects a continuation of declines
in market prices, a shift from single-function printers to MFPs, and an expansion of the digital
photo market. To manage these trends, Canon has established a line of MFPs from flagship to entry
models in order to expand its printer sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s laser beam printer business holds a strong position in the market. In the monochrome
laser beam printer market, Canon expects that the transition to a low price segment will expand
sales in the micro-business/home office market and in the emerging markets. In the color laser beam
printer market, Canon expects continued strong growth in demand. In general, competition will
become more intense as competitors implement aggressive price strategies in order to establish
themselves as market leaders. Canon seeks to remain competitive by developing technologies that can
be deployed in a timely fashion to produce innovative products in all segments. Canon is also
working to lower costs by automating production of consumables and to secure procurement of
essential parts through internal sourcing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although Canon expects that the size of the scanner market will continue to contract, the
stylish and compact CanoScan LiDE series and Hyper CCD models with ultrahigh-resolution were both
introduced in fiscal 2005 in order to increase Canon&#146;s share of this market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The size of the worldwide facsimile market has remained stable, as expansion in Asia, mainly
China, has offset declines in other regions. Due to price declines for inkjet MFPs with facsimile
function, prices are also declining for stand-alone machines.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Business information products
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With regard to personal computers, demand from corporate clients in the Japanese market held
steady in fiscal 2005, but a decline in sales was caused by Canon&#146;s change in marketing strategy
from selling single products to a solutions business involving the proposal of unique combinations
of various products. This trend is expected to continue in fiscal 2006.
</DIV>

<P align="center" style="font-size: 10pt">36
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Cameras segment</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The entire digital camera market continues to expand. While the growth rate has slowed in
Japan and the United States, emerging markets, especially China and Eastern Europe, have
experienced strong growth. In addition, the emergence of new photo imaging systems has contributed
to this growth as well, such as PC-free direct printing systems, by expanding the digital imaging
functionality through network connectivity, along with the improvement of the user-friendly image
processing interfaces and software.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The digital camera industry is seeing growth on various fronts. As with most other digital
consumer electronics, the digital camera market is now confronted with a fierce price war and
intensified technological competition in terms of picture quality and functions. Profit margins
have been shrinking for the overall industry, but Canon has been able to maintain higher margins
through reforms of its production and procurement systems.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon expects the market for compact digital cameras to expand in the intermediate term.
However, profit margins for the overall industry are moving lower as prices fall and competition
increases. Therefore, Canon plans to continue cutting production costs while expanding our presence
in terms of quantity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are signs of rapid growth in the market for compact photo printers, which present a new
business opportunity. By creating a strong product line over the mid-term, Canon believes that it
will be able to take a significant role in this market and turn the compact photo printer business
into a new earnings source for Canon.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon played a major role in the continued expansion of the digital SLR market in fiscal 2005.
This market is expected to continue growing for the time being. However, Canon expects the growth
rate to fall once this new demand has peaked.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market for film cameras is contracting as a result of the rapid shift to digital cameras.
Canon anticipates this trend to continue, both for film SLR cameras and for film
compact cameras.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon expects the interchangeable lens market to grow as a result of the rapid market
penetration of digital SLR cameras. In response to the rapid growth of the SLR camera market, Canon
has strengthened its line of interchangeable lenses exclusively for digital SLR cameras, and
currently has five models in this market. Canon seeks to expand its sales and market share by
introducing products especially made for popular class digital SLR cameras.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For video camcorders, analog camcorder sales have been further replaced by sales of digital
camcorders in the United States in fiscal 2005, where the speed of transition used to be moderate.
Against this background two new trends have emerged in the market. First, the introduction of video
cameras using DVDs, HDDs, SD cards and other new forms of media has resulted in a trend in which
convenience offered by the products is more emphasized. Second, the trend towards higher picture
quality has evolved, provided by products using HDV and other high-resolution recording methods.
Canon believes that these two trends are stimulating the market by responding to more diverse user
needs and will likely contribute to further growth for the overall digital video market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon will seek to continue sales growth with a stronger product line for the Mini DV market
as well as for the DVD and HDV market, while continuing to invest in R&#038;D to follow new trends in
the market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon expects that the market for liquid crystal projectors will continue to grow by about 20%
per year on a unit basis, while market prices will continue to decline, resulting in moderate
growth in monetary terms. Our independently developed SX50 high-resolution projector, which was
introduced at the end of last year, has been winning praise in the market thanks to its picture
quality and compact dimensions. This product is helping Canon capture a significant share of the
market for high-resolution projectors. Canon will continue to make distinctive products that meet
the demands of the projector market, such as greater brightness and resolution.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Optical and other products segment</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon expects new orders for semiconductor-production equipment to increase in fiscal 2006, as
the market turns to the recovery phase following to the adjustment period in fiscal 2005. In
general, the trend toward high resolution and higher speed equipment will likely to continue in the
semiconductor industry. In order to manage theses trends, Canon
introduced the FPA-6000AS4 in fiscal
2004, and the FPA-6000ES6a in fiscal 2005. Canon will continue to focus on developing new products
in order to satisfy the semiconductor manufacturers who have various device patterns.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For fiscal 2005, sales of aligners for the production of LCDs realized significant growth as
the PC monitor industry continued to shift from CRT to LCD displays, and the LCD television market
continued to expand. However, in the LCD production mask aligner market, demand is expected to
decline gradually as the trend toward increased capital investment tapers off, and also due to the
timing of the release of the brand-new models scheduled sometime next year, the order is expected
to show a moderate decline.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The TV lens market is enjoying a gradual recovery thanks to the improving economy and new
demand as more broadcasting equipment switches over to digital. In fact, in 2005 the market
returned to roughly the same level seen four years ago just before the September&nbsp;11. Growth in
demand for HDTV lenses until now has come mainly from Japan and the U.S., but Canon is now starting
to see greater demand in Europe as well. Canon also expects to see new demand in China and other
Asian markets thanks to the shift to digitalization. Though Canon already has a major market share
worldwide for this class of lens, it intends to continue to strengthen its position in this market.
</DIV>

<DIV align="left">
<A name="138"></A>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Forward looking statements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The foregoing discussion and other disclosure in this report contains forward-looking
statements that reflect management&#146;s current views with respect to certain future events and
financial performance. Actual results may differ materially from those projected or implied in the
forward-looking statements. Further, certain forward-looking statements are based upon assumptions
of future events that may not prove to be accurate. The following important factors could cause
actual results to differ materially from those projected or implied in any forward-looking
statements: foreign currency exchange rate fluctuations; the uncertainty of Canon&#146;s ability to
implement its plans to localize production and other measures to reduce the impact of foreign
currency exchange rate fluctuations; uncertainty as to economic conditions, in Canon&#146;s major
markets; uncertainty of continued demand for Canon&#146;s high-value-added products; uncertainty as to
the recovery of computer and related markets; uncertainty of recovery in demand for Canon&#146;s
semiconductor production equipment; Canon&#146;s ability to continue to develop products and to market
products that incorporate new technology on a timely basis, are competitively priced and achieve
market acceptance; the possibility of losses resulting from foreign currency transactions designed
to reduce financial risks from changes in foreign currency exchange rates; and inventory risk due
to shifts in market demand.
</DIV>

<P align="center" style="font-size: 10pt">37
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="139"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>E.&nbsp;Off-balance sheet arrangements</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of its ongoing business, Canon does not participate in transactions that generate
relationships with unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have been established
for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon provides guarantees to third parties of bank loans of its employees, affiliates and
other companies. Canon would have to perform under a guarantee, if the borrower defaults on a
payment within the contract periods of 1&nbsp;year to 30&nbsp;years in the case of employees with housing
loans, and of 1&nbsp;year to 10&nbsp;years in the case of affiliates and other companies. The maximum amount
of undiscounted payments Canon would have had to make in the event of default by all borrowers was
Yen 38,550&nbsp;million at December&nbsp;31, 2005. The carrying amounts of the liabilities recognized for
Canon&#146;s obligations as a guarantor under those guarantees are insignificant.
</DIV>
<DIV align="left">
<A name="140"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>F.&nbsp;Contractual obligations</B>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following summarizes Canon&#146;s contractual obligations at December&nbsp;31, 2005.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>Payments Due By Period</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Less than</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>More than</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>1 year</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>1-3 years</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>3-5 years</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>5 years</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Contractual Obligations:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Long-Term Debt:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Capital Lease Obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">8,784</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,159</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,064</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other Long-Term Debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,290</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,605</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Operating Lease Obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,571</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,693</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,823</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,502</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchase commitments for :</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Property Plant and Equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87,244</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87,244</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Parts and Raw Materials</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67,831</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67,831</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">239,738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">174,638</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,362</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,135</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,603</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon provides warranties generally less than one year against defects in materials and
workmanship on most of its consumer products. Estimated product warranty related costs are
established at the time revenue is recognized and are included in selling, general and
administrative expenses. Estimates for accrued product warranty cost are primarily based on
historical experience, and are affected by ongoing product failure rates, specific product class
failures outside of the baseline experience, material usage and service delivery costs incurred in
correcting a product failure. As of December&nbsp;31, 2005, accrued product warranty costs amounted to
Yen 16,746&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2005, commitments outstanding for the purchase of property, plant and
equipment approximated Yen 87,244&nbsp;million, and commitments outstanding for the purchase of parts
and raw materials approximated Yen 67,831&nbsp;million, both for use in the ordinary course of its
business. Canon anticipates that funds needed to fulfill these commitments will be generated
internally through operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s management believes that current financial resources, cash generated from operations
and Canon&#146;s potential capacity for additional debt and/or equity financing will be sufficient to
fund current and future capital requirements.
</DIV>

<P align="center" style="font-size: 10pt">38
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="141"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;6. Directors, Senior Management and Employees</B>
</DIV>

<DIV align="left">
<A name="142"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>A.</B>&nbsp;&nbsp;&nbsp;<B>Directors and senior management</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Directors and corporate auditors of the Company as of March&nbsp;31, 2006 and their respective
business experience are listed below.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="26%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="42%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Position</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Date of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Business experience</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>(Date of birth)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>(Group executive/function)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>commencement</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>(*current position/function)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Fujio
Mitarai</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top" rowspan="2"><DIV style="margin-left:15px; text-indent:-15px">Chairman,
President &#038; CEO</DIV>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">4/1961
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Sept. 23, 1935)</DIV></TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">1/1979
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President of Canon U.S.A., Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3/1981</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3/1985
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">1/1989
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">In charge of HQ administration</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3/1989
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Managing Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3/1993
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Vice President</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">9/1995
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President &#038; C.E.O.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman,
President &#038; CEO*</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tsuneji Uchida
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Vice President
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">4/1965
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Oct. 30, 1941)
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top" rowspan="3"><DIV style="margin-left:15px; text-indent:-15px">(Chief
Executive of Image Communication Products Operations HQ)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">4/1995
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Group Executive of Lens Products Group</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3/1997
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">4/1997
</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Deputy Chief Executive of Camera Operations HQ/Group
Executive of Photo Products Group</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">4/1999
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive of Camera Operations HQ</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">7/1999
</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">In
charge of promotion of digital photo business</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">1/2000
</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">In
charge of promotion of digital photo home business</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">1/2001
</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Chief
Executive of Image Communications Products HQ*</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3/2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3/2003
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Managing Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Vice President*</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Toshizo Tanaka
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Managing Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">4/1964
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Oct. 8, 1940)
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top" rowspan="2"><DIV style="margin-left:15px; text-indent:-15px">(Group Executive of Finance &#038; Accounting HQ)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">1/1992
</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Deputy
Group Executive of Finance &#038; Accounting HQ</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3/1995
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">4/1995
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Group Executive of Finance &#038; Accounting HQ*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3/1997
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3/2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Managing Director*</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Nobuyoshi Tanaka
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Managing Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">4/1970
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Dec. 23, 1945)
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top" rowspan="3"><DIV style="margin-left:15px; text-indent:-15px">(Group Executive of Corporate Intellectual Property &#038; Legal HQ)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">1/1991
</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Senior
General Manager of Semiconductor Production Equipment Development Center</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3/1993
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">4/1993
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive of Optical Products HQ</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">4/1999
</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Group
Executive of Corporate Intellectual Property &#038; Legal HQ*</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3/2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Managing Director*</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Junji Ichikawa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Managing Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">4/1965
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered Shiba Electronics Co., Ltd.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Feb. 9, 1943)
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top" rowspan="3"><DIV style="margin-left:15px; text-indent:-15px">(Chief Executive of Optical Products HQ)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">1/1970
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">4/1994
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Group Executive of Peripheral Group 1</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3/1997
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">4/1997
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Deputy Chief Executive of Peripheral Products HQ</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">4/2000
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive of Peripheral Products HQ</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3/2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">4/2003
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Group Executive of Production Management HQ</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">4/2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive of Optical Products HQ*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Managing Director*</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">39
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="26%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="42%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Position</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center"><B>Date of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Business experience</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>(Date of birth)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>(Group executive/function)</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center" style="border-bottom: 1px solid #000000"><B>commencement</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>(*current position/function)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hajime Tsuruoka
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Managing Director
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/1970
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered Meiji Seika Kaisha Ltd.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(July&nbsp;9, 1943)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">11/1973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1995
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President of Canon Italia S.p.A.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/1997
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">9/1997</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President of Canon Deutschland GmbH</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/1999
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President of Canon Europa N.V.*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2001
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2006
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Managing Director*</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Akiyoshi Moroe
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1968
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Sept. 28, 1944)
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">(Group Executive of General Affairs HQ)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">7/1996
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Deputy
Group of Executive of Human Resource Management &#038; Organization HQ</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/1999
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1999
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Group Executive of General Affairs HQ*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">10/2000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Group
Executive of Information &#038; Communications Systems HQ</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2003
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director*</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kunio Watanabe
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1969
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Oct. 3, 1944)
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">(Group Executive of Corporate Strategy &#038; Development HQ)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1995
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Group Executive of Corporate
Strategy &#038; Development HQ*</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/1999
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2003
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director*</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hironori Yamamoto
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1969
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Dec. 23, 1943)
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">(Group Executive of Production Management HQ,</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">1/1998
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Deputy
Group Executive of Production Management HQ</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" rowspan="3"><DIV style="margin-left:15px; text-indent:-15px">Group
Executive of Global Environment Promotion HQ)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/1999
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">7/1999
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Group
Executive of Core Technology Development HQ/Deputy Group Executive of Display Development HQ</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2001
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Group Executive of Display Development HQ</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2004
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">7/2005
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Group Executive of Production Management HQ*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2006
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Group
Executive of Global Environment Promotion HQ*</DIV></TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yoroku Adachi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1970
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Jan. 11, 1948)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2001
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman of Canon Singapore Pte. Ltd.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Chairman
of Canon HongKong Co., Ltd.<BR>Director</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2003
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President of Canon (China) Co., Ltd.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2005
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director *</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2005
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President of Canon U.S.A., Inc.*</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yasuo Mitsuhashi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1974
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Nov. 23, 1949)
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top" rowspan="2"><DIV style="margin-left:15px; text-indent:-15px">(Chief Executive of Peripheral Products HQ)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">2/2001
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive of Chemical Products HQ</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2001
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2003
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive of Peripheral Products HQ*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2005
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director *</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Katsuichi Shimizu
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1970
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Nov. 13, 1946)
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">(Chief Executive of Inkjet Products HQ)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2001
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Deputy
Chief Executive of Office Imaging Products HQ</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD align="right" valign="top">3/2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2003
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive of Inkjet Products HQ*</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ryoichi Bamba
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1972
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Nov. 25, 1946)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1998
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President of Canon U.S.A., Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">2/2003
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Vice President of Canon U.S.A., Inc.*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2003
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director*</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tomonori Iwashita
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1972
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Jan. 28, 1949)
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">(Deputy Chief Executive of Image Communication Products HQ)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1999
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Senior
General Manager of Camera Development Center</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">1/2001
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Group Executive of Photo Products Group</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2003
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2003
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Deputy
Chief Executive of Image Communication Products HQ*</DIV></TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">40
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="26%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="42%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Position</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center"><B>Date of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Business experience</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>(Date of birth)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>(Group executive/function)</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center" style="border-bottom: 1px solid #000000"><B>commencement</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>(*current position/function)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Toshio Honma
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1972
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Mar. 10, 1949)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" rowspan="2"><DIV style="margin-left:15px; text-indent:-15px">(Group
Executive of L Printer Business Promotion HQ)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Deputy
Chief Executive of i Printer Products HQ</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director*</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2003
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Group Executive of Business Promotion HQ</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">7/2003
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Group
Executive of L Printer Business Promotion HQ*</DIV></TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shigeru Imaiida
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1972
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Sept. 16, 1948)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">8/1999
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Senior
General Manager of Production Engineering Center</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2003
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2004
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Group Executive of Production Management HQ</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">7/2005
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Deputy
Group Executive of Production Management HQ</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">10/2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director of Canon ANELVA Co.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Managing Director of Canon
ANELVA Co.*</TD>
</TR>



<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Masahiro Osawa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1971
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(May&nbsp;26, 1947)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" rowspan="2"><DIV style="margin-left:15px; text-indent:-15px">(Group Executive of Global Procurement HQ)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">7/1997</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President of Canon U.S.A., Inc.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">2/2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President of Canon U.S.A., Inc.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">7/2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Deputy Group Executive of Finance
&#038; Accounting HQ</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2004
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2004
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Group Executive of Global Procurement HQ*</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Keijiro Yamazaki</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1971</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Oct. 14, 1948)</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top" rowspan="4"><DIV style="margin-left:15px; text-indent:-15px">(Group Executive of Human Resource Management &#038; Organization HQ,</DIV><DIV style="margin-left:15px; text-indent:-15px">Group Executive of Information &#038; Communications Systems HQ)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1999</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">General
Manager of Human Resource Management &#038; Organization Div.</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">1/2000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Deputy Group Executive of Human
Resource Management
&#038; Organization HQ</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">3/2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top">Director*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2004
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Group
Executive of Information &#038; Communications Systems HQ*</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2006
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Group
Executive of Human Resource Management &#038; Organization HQ*</DIV></TD>
</TR>

<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shunichi Uzawa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">8/1978
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Jan. 26, 1949)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">(Group Executive of Core Technology Development HQ)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">1/1998
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Senior
General Manager of Nano-technology Research Center</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2001
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Deputy
Group Executive of Display Development HQ</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2004
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2004
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Group Executive of SED Development HQ</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">10/2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President of SED Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">1/2006
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Group
Executive of Core Technology Development HQ*</DIV></TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Masaki Nakaoka
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1975
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Jan. 3, 1950)
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">(Group
Executive of Office Imaging Products HQ)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">1/1997
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Senior
General Manager of Office Imaging Products Development Center 1</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1999
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Group Executive of Office Imaging Products Group 1
</DIV></TD></TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2001
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Deputy
Chief Executive of Office Imaging Products HQ</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2004
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2005
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive of Office Imaging Products HQ*</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Toshiyuki Komatsu
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1972
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Jan. 19, 1950)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" rowspan="2"><DIV style="margin-left:15px; text-indent:-15px">(Group Executive of Leading-Edge Technology Development HQ)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">1/1998</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior General Manager of Canon Research Center</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">1/2000
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Deputy
Group Executive of Core Technology Development HQ</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2004
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2004
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Group
Executive of Leading-Edge Technology Development HQ*</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">7/2005
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Group
Executive of Core Technology Development HQ</DIV></TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shigeyuki Matsumoto
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1977
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Nov. 15, 1950)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" rowspan="2"><DIV style="margin-left:15px; text-indent:-15px">(Group Executive of Device Technology Development Headquarters)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">1/2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Group
Executive of Device Technology Development Headquarters*</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director*</TD>
</TR>

<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">41
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="26%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="42%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Position</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Date of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Business experience</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>(Date of birth)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>(Group executive/function)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>commencement</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>(*current position/function)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Haruhisa Honda
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1974
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Oct. 14, 1948)
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">(Chief Executive of Chemical Products Operations)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1995
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Senior General Manager of Cartridge
Development Center</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2004
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2004
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive of Chemical Products Operations*</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" colspan="3" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tetsuro Tahara
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1971
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Jan. 31, 1949)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1999
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Senior
General Manager of Office Imaging Products Production Management
Center</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2002
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Deputy
Chief Executive of Office Imaging Products HQ</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2003
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President of Canon (Suzhou) Inc.*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2006
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director*</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Seijiro Sekine
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1972
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Oct. 20, 1948)
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">(Group Executive of Logistics HQ)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1995
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">General
Manager of Business Information Systems Division</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">1/2001
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Deputy
Group Executive of Information &#038; Communication Systems HQ</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">10/2004
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Group Executive of Logistics HQ*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2006
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director*</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shunji Onda
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1972
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Mar. 13, 1950)
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top" rowspan="3"><DIV style="margin-left:15px; text-indent:-15px">(Senior General Manager of Optical Products Business Administration Center)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">1/1999
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">General Manager of Peripheral
Products<BR>Chief Executive Office</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">1/2002
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">General Manager of Finance Division</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2004
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Senior
General Manager of Optical Products Business Administration
Center*</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2006
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director*</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Teruomi Takahashi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corporate Auditor
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">9/1971
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(June&nbsp;10, 1943)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/1999
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1999
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive of Chemical Products HQ</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">2/2001
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive of BJ Products HQ</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2001
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive of i Printer Products HQ</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2003
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive of Chemical Products HQ</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2004
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corporate Auditor *</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kunihiro Nagata
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corporate Auditor
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1970
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Mar.16, 1948)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">1/1991
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">General
Manager of Business Machines Accounting Dept.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1995
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Senior
General Manager of Business Machines Accounting &#038; Production
Planning Center</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">10/2000
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">General Manager of Corporate Planning Division</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">1/2003
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Deputy
Group Executive of Corporate Strategy Development HQ</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2004
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corporate Auditor *</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tadashi Ohe
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corporate Auditor
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1969
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Registration as a lawyer*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(May&nbsp;20, 1944)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1989
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Instructor of Judicial Training Institution</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/1994
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corporate Auditor, the Company*</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yoshinobu Shimizu
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corporate Auditor
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/1973
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Registered as Certified Public Accountant*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Oct. 26, 1944)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">6/1990
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Representative Partner of Showa Ota &#038; Co.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">5/2002
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">Deputy Chief Executive Officer of
Century Ota Showa &#038; Co. (renamed Ernst &#038; Young
ShinNihon)</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2006
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corporate Auditor, the Company*</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Minoru Shishikura
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corporate Auditor
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1976
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entered The Dai-Ichi Mutual Life Insurance Co.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Sept. 13, 1953)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/1998
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">General Manager of Metropolitan
Corporate Loan Dept. of The Dai-Ichi Mutual Life Insurance Co.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2000
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">General Manager of Loan Department
of The Dai-Ichi Mutual Life Insurance Co.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4/2002
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:15px; text-indent:-15px">General
Manager of Credit Department of The Dai-Ichi Mutual Life Insurance
Co.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3/2006
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corporate Auditor, the Company*</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">42
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Term</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All directors and corporate auditors are elected by the shareholders at their general meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The term of office of directors is one year. The current term of all directors expires in
March&nbsp;2007. The term of office of corporate auditors is four years. The current term for Mr.&nbsp;Ohe
expires in March&nbsp;2007, while current terms for Mr.&nbsp;Takahashi and Mr.&nbsp;Nagata, who were elected in
the general meeting of shareholders in March&nbsp;2004, expire in March&nbsp;2008, and current terms for
Mr.Shimizu and Mr.Shishikura, who were newly elected in the general meeting of shareholders in
March&nbsp;2006, expires in March&nbsp;2010.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Board members and corporate auditors may serve any number of consecutive terms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There is no arrangement or understanding between any director or corporate auditor and any
major shareholder, customer, supplier or other material stakeholders in connection with the
selection of such director or corporate auditor.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Board of Directors and Corporate Auditors</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s articles of incorporation provide for a board of directors of not more than 30
members and for not more than five corporate auditors. Currently the number of board members is 26,
and the number of corporate auditors is five. There is no maximum age limit for members of the
board. Board members and corporate auditors may be removed from office at any time by a resolution
of a general meeting of shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board of directors has ultimate responsibility for the administration of the Company&#146;s
affairs. By resolution, the board of directors designates, from among its members, representative
directors, who have authority individually to represent the Company generally in the conduct of its
affairs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Commercial Code of Japan, board members must refrain from engaging in any business
competing with the Company unless approved by a board resolution, and no board member may vote on a
proposal, arrangement or contract in which that board member is deemed to be materially interested.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Commercial Code requires a resolution of the board of directors for a company to acquire
or dispose of material assets, to borrow substantial amounts of money, to employ or discharge
important employees such as corporate officers, and to establish, change or abolish material
corporate organizations such as a branch office.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The corporate auditors are not required to be certified public accountants, although
Mr.Shimizu is a certified public accountant. At least half of corporate auditors must be persons
who have not been either board members or employees of the Company or any of its subsidiaries. A
corporate auditor may not at the same time be a board member or an employee of the Company or any
of its subsidiaries. The corporate auditors have the statutory duty of examining the Company&#146;s
financial statements and the Company&#146;s business reports to be submitted annually by the board of
directors at the general meetings of shareholders and of reporting their opinions to the
shareholders. They also have the statutory duty of supervising the administration by the board
members of the Company&#146;s affairs. They shall participate in the meetings of the board of directors
but are not entitled to vote.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The corporate auditors constitute the board of corporate auditors. Under &#147;The Law to Revise
Part of the Commercial Code and the Law Regarding Exceptional Rules of the Commercial Code
Concerning Auditing, etc. of Stock Corporation&#148;, the board of corporate auditors has a statutory
duty to prepare and submit its audit report to the board of directors each year. A corporate
auditor may note an opinion in the auditor report if a corporate auditor&#146;s opinion is different
from the opinion expressed in the audit report. The board of corporate auditors is empowered to
establish audit principles, the method of examination by corporate auditors of the Company&#146;s
affairs and financial position and other matters concerning the performance of the corporate
auditors&#146; duties. The Company does not have an audit committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amount of remuneration payable to the Company&#146;s board members as a group and that of the
Company&#146;s corporate auditors as a group in respect of a fiscal year is subject to approval by a
general meeting of shareholders. Within those authorized amounts, the compensation for each board
member and corporate auditor is determined by the board of directors and a consultation of the
corporate auditors, respectively. The Company does not have a remuneration committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In fiscal 2004, Canon established a standing committees, the Internal Control Committee, with
the president appointed as chairman of the group. The Internal Control Committee has built a highly
effective internal control system unique to the Canon Group, which not only serves to ensure the
reliability of the company&#146;s financial reporting, but also aims to ensure the effectiveness and
efficiency of its business operations, as well as compliance with related laws, regulations, and
internal controls.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additionally, in fiscal 2005, the Disclosure Committee was established with the president
appointed as chairman. This committee was formed to ensure that Canon is not only in compliance
with applicable laws, rules and regulations, but also to ensure that information disclosed to
shareholders and capital markets is both correct and comprehensive.
</DIV>
<DIV align="left">
<A name="143"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>B.&nbsp;Compensation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the fiscal year ended December&nbsp;31, 2005, the Company paid approximately Yen 1,442&nbsp;million,
in total to directors and corporate auditors. This amount includes bonuses but excludes retirement
allowances.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Directors and corporate auditors are not covered by the Company&#146;s retirement program. However,
in accordance with customary Japanese business practices, directors and corporate auditors receive
lump-sum retirement benefits, subject to shareholder approval. The Company paid retirement benefits
aggregating Yen 120&nbsp;million to two directors during the fiscal year ended December&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company does not have a stock option plan for directors, corporate auditors or any other
employees.
</DIV>

<P align="center" style="font-size: 10pt">43
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="144"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C.&nbsp;Board practices</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See
Item&nbsp;6A &#147;Directors and senior management&#148; and
Item&nbsp;6B &#147;Compensation.&#148;
</DIV>
<DIV align="left">
<A name="145"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D.&nbsp;Employees</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following table lists the number of Canon&#146;s full-time employees as of December&nbsp;31, 2005, 2004 and 2003.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Japan</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Americas</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Europe</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Others</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Business machines</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,906</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,964</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,297</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,657</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cameras</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,552</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,405</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,088</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Optical and other products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,762</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">999</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">435</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,079</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,607</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,161</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">262</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,637</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,938</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,922</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,086</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Business machines</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,997</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,014</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cameras</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,534</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,724</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Optical and other products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,397</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,458</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">908</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,640</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,554</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,709</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">620</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,257</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,103</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,898</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,998</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Business machines</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70,214</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,734</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,520</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,140</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cameras</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,856</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,698</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,318</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,834</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Optical and other products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,580</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">908</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">619</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,201</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,189</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,368</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">525</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102,567</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,180</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,307</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,700</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Note:<BR>
Effective January&nbsp;2004, Canon has changed the classification of its information system business.
The information system business which had been included in &#147;Optical and other products&#148;, was
reclassified as &#147;Business machines (Office imaging products)&#148; in order to better reflect its
relation with the other products of the business machines group. Accordingly, information for
previous fiscal years has been reclassified to conform with the current classification.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There was an increase of approximately 7,300 employees as of the end of fiscal 2005 as
compared to the end of fiscal 2004. This increase is mainly due to
employment increases in the Asian region to accommodate production increases, as well as the effect
of the newly acquired companies in Japan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon had approximately 45,800 temporary employees on average during fiscal 2005. This number
includes seasonal workers as well as temp-staff employees such as security staff, meal service
staff and janitorial staff.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company and its subsidiaries have their own independent labor union. Canon has not
experienced a labor strike since its establishment. The Company
believes that the relationship between Canon and its labor union is good.
</DIV>

<P align="center" style="font-size: 10pt">44
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="146"></A>
</DIV>

<P align="left" style="font-size: 10pt"><DIV style="margin-left:15px; font-size: 10pt; text-indent:-0px"><B>E. Share ownership</B></DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table lists the number of shares owned by the directors and corporate auditors
of the Company as of March&nbsp;31, 2006. The total is 216,086
shares constituting 0.02% of all outstanding shares.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="37%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Position</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Number of shares</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Fujio Mitarai
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman, President &#38; CEO</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">60,800</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tsuneji Uchida
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Vice President
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5,600</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Toshizo Tanaka
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Managing Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">11,768</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Nobuyoshi Tanaka
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Managing Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">12,355</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Junji Ichikawa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Managing Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">10,531</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hajime Tsuruoka
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Managing Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7,695</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Akiyoshi Moroe
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">10,955</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kunio Watanabe
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8,235</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hironori Yamamoto
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4,900</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yoroku Adachi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6,095</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yasuo Mitsuhashi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4,985</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Katsuichi Shimizu
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5,625</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ryoichi Bamba
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">3,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tomonori Iwashita
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">3,700</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Toshio Honma
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6,595</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shigeru Imaiida
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4,535</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Masahiro Osawa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">3,295</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Keijiro Yamazaki
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">3,100</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shunichi Uzawa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">3,395</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Masaki Nakaoka
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Toshiyuki Komatsu
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,400</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shigeyuki Matsumoto
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2,235</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Haruhisa Honda
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2,926</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tetsuro Tahara
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">435</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Seijiro Sekine
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2,560</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shunji Onda
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2,435</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Teruomi Takahashi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corporate Auditor
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7,231</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kunihiro Nagata
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corporate Auditor
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,300</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tadashi Ohe
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corporate Auditor
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">15,400</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yoshinobu Shimizu
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corporate Auditor
</TD>
<TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;
</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Minoru Shishikura
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corporate Auditor
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Total
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">216,086</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company and certain of its subsidiaries encourage its employees to purchase shares of
their Common Stock in the market through an employees&#146; stock purchase association.
</DIV>

<P align="center" style="font-size: 10pt">45
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="147"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;7. Major Shareholders and Related Party Transactions</B>
</DIV>

<DIV align="left">
<A name="148"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>A.&nbsp;Major shareholders</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The table below shows the number of The Company&#146;s shares held by the top ten holders of the
Company&#146;s shares and their percentage ownership as of December&nbsp;31, 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name of major shareholder</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Shares owned</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Percentage</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(In thousands)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">The Dai-Ichi Mutual Life Insurance Co.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">59,090</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6.7</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Moxley and Co.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">49,388</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5.6</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japan Trustee Services Bank, Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">48,360</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5.4</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(Trust Account)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">The Master
Trust Bank of Japan, Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">39,888</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.5</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(Trust Account)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">State Street Bank and Trust Company 505103</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">24,740</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2.8</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">State Street Bank and Trust Company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">21,629</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2.4</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Nomura Securities Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">19,735</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2.2</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Mizuho Corporate Bank, Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">18,946</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2.1</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">The Chase Manhattan Bank, N.A. London</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">18,653</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2.1</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sompo Japan Insurance Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">15,273</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.7</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s major shareholders do not have different voting rights from other shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, 21.4% of the outstanding shares of common stock were held of record
by 248 residents of the United States of America.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is not directly or indirectly owned or controlled by any other corporation, by any
government, or by any other natural or legal person or
persons severally or jointly.
</DIV>
<DIV align="left">
<A name="149"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>B.&nbsp;Related party transactions</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since the beginning of Canon&#146;s last full fiscal year, Canon has not transacted with, nor does
Canon currently plan to transact with a related party
(other than certain transactions with subsidiaries of the Company). For purposes of this paragraph,
a related party includes: (a)&nbsp;enterprises that directly or
indirectly through one or more intermediaries, control or are controlled by, or are under common
control with, Canon; (b)&nbsp;associates; (c)&nbsp;individuals owning,
directly or indirectly, an interest in the voting power of Canon that gives them significant
influence over Canon, and close members of any such individual&#146;s
family; (d)&nbsp;key management personnel, that is, those persons having authority and responsibility
for planning, directing and controlling the activities of
Canon, including directors and senior management of companies and close member of such individual&#146;s
families; (e)&nbsp;enterprises in which a substantial interest
in the voting power is owned, directly or indirectly, by any person described in (c)&nbsp;or (d)&nbsp;or over
which such a person is able to exercise significant influence. This includes enterprises owned by
directors or major shareholders of Canon and enterprises that have a member of key management in
common with Canon. Close members of an individual&#146;s family are those that may be expected to
influence, or be influenced by, that person in their dealings with Canon. An associate is an
unconsolidated enterprise in which Canon has a significant influence or which has significant
influence over Canon. Significant influence over an enterprise is the power to participate in the
financial and operating policy decisions of the enterprise but is less than control over those
policies. Shareholders beneficially owning a 10% interest in the voting power of the Company are
presumed to have a significant influence on Canon.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To the Company&#146;s knowledge, no person owned a 10% interest in the voting power of the Company
as of March&nbsp;31, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the ordinary course of business on an arm&#146;s length basis, Canon purchases and sells
materials, supplies and services from and to its affiliates accounted for by the equity method.
There are 13 affiliates which are accounted for by the equity method. Canon does not consider the
amounts of the transactions with the
above affiliates to be material to its business.
</DIV>
<DIV align="left">
<A name="150"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>C.&nbsp;Interests of experts and counsel</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not Applicable.
</DIV>

<P align="center" style="font-size: 10pt">46
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="151"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;8. Financial Information</B>
</DIV>

<DIV align="left">
<A name="152"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>A.&nbsp;Consolidated financial statements and other financial information</B>
</DIV>
<DIV align="left">
<A name="153"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Consolidated financial statements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Annual Report contains consolidated financial statements as of December&nbsp;31, 2005 and 2004
and for each of the three years in the period ending
December&nbsp;31, 2005 prepared in accordance with U.S. generally accepted accounting principles and
audited in accordance with the standards of the Public Company Accounting Oversight Board (United
States) by an Independent Registered Public Accounting Firms. The financial statements as of and
for the years ended December&nbsp;31, 2005 and 2004 have been audited by Ernst &#038; Young ShinNihon, while
the financial statements for periods ended prior to December&nbsp;31, 2004, were audited by KPMG AZSA &#038;
Co., and audit reports covering each of the periods are included in Item17 of this report.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Refer to Item&nbsp;17, Consolidated Financial Statements and Notes to Consolidated Financial
Statements.
</DIV>
<DIV align="left">
<A name="154"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Legal proceedings</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other than as described below, neither the Company nor its subsidiaries are involved in any
litigation or other legal proceedings that, if determined adversely to the Company or its
subsidiaries, would individually or in the aggregate have a material adverse effect on the Company
or its operations.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On December&nbsp;17, 2002, the European Commission instituted an investigation into the printer
and supply market. Canon received a questionnaire in connection with the investigation of
the printer and supply market on January&nbsp;3, 2003 and Canon has submitted its response. The
investigation is yet to be closed.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On January&nbsp;16, 2003, the Dusseldorf District Court in Germany issued rulings in Canon&#146;s
favor in two patent infringement actions filed by Canon against Pelikan Hardcopy
Deutschland GmbH and Pelikan Hardcopy European Logistics &#038; Services GmbH (collectively,
&#147;Pelikan Hardcopy&#148;). Pelikan Hardcopy has appealed the decision. On November&nbsp;20, 2003, the
Dusseldorf District Court in Germany issued a ruling in Canon&#146;s favor in another patent
infringement action filed by Canon against Pelikan Hardcopy. Pelikan Hardcopy has appealed
the decision. The Dusseldorf High Court issued rulings in Canon&#146;s favor in one of the three
appeals by Pelikan Hardcopy. On November&nbsp;17, 2005, the Dusseldorf High Court issued
rulings in Canon&#146;s favor in another of the three appeals by
Pelikan Hardcopy. The
remaining one of the appeals has been suspended by the Court since April&nbsp;19, 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In October&nbsp;2003, on-the-spot investigation was made against Canon by the Japanese Fair Trade
Commission (&#147;FTC&#148;). Their allegation against us was that Canon was interfering with the
businesses of the cartridge remanufacturers by frequently changing the design of color LBP
cartridges. This investigation was terminated by FTC on October&nbsp;21, 2004, without taking
any action.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In November&nbsp;2003, a lawsuit was filed by a former employee against the Company at the
Tokyo District Court in Japan. The lawsuit alleges that the former employee is entitled to
Yen 45.9&nbsp;billion as compensation for an invention related to certain technology used by the
Company, and the former employee has sued for a partial payment of Yen 1&nbsp;billion and
interest thereon. The case is still pending and the final outcome is not yet determinable.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In February&nbsp;2003, a lawsuit was filed by St. Clair Intellectual Property Consultants,
Inc. (&#147;St. Clair&#148;) against the Company and one of its subsidiaries in the United States
District Court of Delaware, which accused the Company of infringement of patents related to
certain technology. In connection with this case, in October&nbsp;2004, a jury preliminarily
found damages against the Company of approximately Yen 4&nbsp;billion based on a percentage of
certain product sales in the United States through 2003. Subsequent to this jury finding,
St. Clair also made a motion to the court for damages relating to certain 2004 sales, using
the same royalty rate awarded by the jury. There are additional defenses that are yet to be
litigated in a follow-up non-jury trial solely before a judge; thus, a final decision by the
court has not yet been reached. In March&nbsp;2006, the Company and St. Clair have entered into
a settlement agreement, pursuant to which they have agreed to settle the lawsuit and
withdraw it.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In Germany, Verwertungsgesellschaft Wort (&#147;VG Wort&#148;), a collecting agency representing
certain copyright holders, has filed a series of lawsuits seeking to impose copyright levies
upon digital products such as PCs and printers, that allegedly enable the reproduction of
copyrighted materials, against the companies importing and distributing these digital
products. In May&nbsp;2004, VG Wort filed a civil lawsuit against Hewlett-Packard GmbH seeking
for levies on multi-function printers. This is an industry test case under which
Hewlett-Packard GmbH represents other companies sharing common interests, and Canon has
undertaken to be bound by the final decision of this court case. The court of first
instance and the court of appeals held that the multi-function printers were subject to a
levy. In particular, the court of appeals ordered Hewlett-Packard GmbH to pay the amount
equivalent to the levies imposed on photocopiers (EUR 38.35 to EUR 613.56 per unit,
depending on printing speed and color printing capability). This lawsuit is currently under
appeal before the German Federal Supreme Court. With regard to single-function printers, VG
Wort filed a separate lawsuit on January&nbsp;3, 2006 against Canon seeking for payment of
copyright levies. Canon, other companies and the industry associations have expressed
opposition to such extension of the levy scope and the final conclusion of these court cases
including the amount of levies to be imposed, remains uncertain.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On April&nbsp;16, 2004, Canon filed two patent infringement
actions against Recycle&nbsp;&#149;&nbsp;Assist
Co., Ltd. (&#147;Recycle&nbsp;&#149;&nbsp;Assist&#148;) before the Tokyo District Court. On December&nbsp;8, 2004, the Tokyo
District Court issued rulings in Recycle&nbsp;&#149;&nbsp;Assist&#146;s favor in the two actions. On December&nbsp;21,
2004, Canon appealed against the decisions of the two actions. On January&nbsp;31, 2006, the
Intellectual Property High Court issued a ruling in favor of Canon in one of the two appeal
cases. On February&nbsp;13, 2006, Recycle&nbsp;&#149;&nbsp;Assist further appealed against this ruling of the
Intellectual Property High Court. The remaining appeal case is pending before the
Intellectual Property High Court.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left">
<A name="155"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Dividend policy</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends are proposed by the Board of Directors of the Company based on the year-end
non-consolidated financial statements of the Company, and are approved at the ordinary general
meeting of shareholders, which is held in March of each year. Record holders of the Company&#146;s
American Depositary Receipts (ADRs) on the dividends&#146; record date are entitled to receive payment
in full of the declared dividend. In addition to annual dividends, by resolution of the Board of
Directors, the Company may declare a cash distribution as an interim dividend. The record date for
the Company&#146;s year-end dividends and for the interim dividends are December&nbsp;31 and June&nbsp;30,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since 1996, under the two five-year initiatives &#151; Phases I and II of the Excellent Global
Corporation Plan &#151; the Canon Group has been working towards increasing its corporate value. During
this period, management has focused on profitability and cash flow, which has led to greater
competitiveness of its products and a stronger financial position.
</DIV>

<P align="center" style="font-size: 10pt">47
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Going forward, Canon will positively invest in strategic areas to accelerate growth, and will
also place priority on actively returning profits to shareholders as an important management
measure, taking full advantage of its strengthened financial base, which is attributable to the two
five-year plans.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As for returning profits to shareholders, Canon has worked to raise its dividend per share in
accordance with the company&#146;s policy of providing a stable dividend. Under the new policy, Canon
will actively work to return profits to shareholders, mainly in the form of a dividend, taking into
consideration planned future investments, free cash flow, and the company&#146;s consolidated business
performance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon has finished this year, the final year of Phase II of the Excellent Global Corporation
Plan, by achieving increases in both sales and profits, and also significantly exceeding the
targets that were set out for Phase II. Accordingly, in response to the continued support of
shareholders and based on the new policy on returning profits to shareholders, Canon has increased
its full-year dividend per share from Yen 65 in 2004, to Yen 100 for fiscal year 2005.
</DIV>
<DIV align="left">
<A name="156"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>B.&nbsp;Significant changes</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No significant change has occurred since the date of the annual financial statements.
</DIV>
<DIV align="left">
<A name="157"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;9. The Offer and Listing</B>
</DIV>

<DIV align="left">
<A name="158"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>A.&nbsp;Offer and listing details</B>
</DIV>
<DIV align="left">
<A name="159"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Trading in domestic markets</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The common stock of the Company has been listed on the Tokyo Stock Exchange (TSE), the
principal stock exchange market in Japan, since 1949, and is traded on the First Section of the
TSE. The shares are also listed on four other regional markets in Japan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table lists the reported high and low sales prices of the shares on the TSE and
the closing highs and lows of the Tokyo Stock Price Index (TOPIX)&nbsp;and Nikkei Stock Average for the
five most recent years. TOPIX is an index of the market value of stocks listed on the First
Section of the TSE. The Nikkei Stock Average, an index of 225 selected stocks on the First Section
of the TSE, is another widely accepted index.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>TSE</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>TOPIX</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Nikkei Stock Average</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>(Canon Inc.)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>(Reference data)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>(Reference data)</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>(Japanese yen)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>(Points)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>(Japanese yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Period</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2001 Year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">5,330</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,441.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">983.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">14,529.41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">9,504.41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2002 Year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,144.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">807.35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,979.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,303.39</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2003 Year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,910</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,114.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">770.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,161.71</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,607.88</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2004 1(st) quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,670</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,920</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,189.38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,017.84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,869.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,299.43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;2(nd) quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,225.97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,051.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,195.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,489.84</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;3(rd) quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,810</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,910</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,197.74</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,073.69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,988.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,545.89</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;4(th) quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,030</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,149.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,068.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,500.95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,575.23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2004 Year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,910</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,225.97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,017.84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,195.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,299.43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2005 1(st) quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,190</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,206.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,128.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,975.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,212.63</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;2(nd) quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,202.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,104.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,911.90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,770.58</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;3(rd) quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,190</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,430.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,174.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,678.44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,540.93</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;4(th) quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,673.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,363.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,445.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,996.29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2005 Year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,190</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,673.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,104.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,445.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,770.58</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>TSE</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>TOPIX</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Nikkei Stock Average</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>(Canon Inc.)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>(Reference data)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>(Reference data)</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>(Japanese yen)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>(Points)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>(Japanese yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Period</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2005 July</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">6,130</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">5,530</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,207.48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,174.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">11,913.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">11,540.93</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;August</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,283.23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,174.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,612.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,614.71</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;September</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,190</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,520</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,430.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,274.63</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,678.44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,498.40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;October</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,447.45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,363.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,783.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,996.29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;November</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,870</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,110</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,553.27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,444.73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,013.24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,606.50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;December</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,760</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,673.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,538.99</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,445.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,880.18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2006 January</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,320</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,721.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,538.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,754.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,059.52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;February</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,370</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,970</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,719.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,568.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,777.37</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,389.58</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;March</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,735.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,595.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,125.64</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,553.14</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">48
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="160"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Trading in foreign markets</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s ADRs are listed on the New York Stock Exchange (NYSE)&nbsp;and the Company&#146;s Global
Bearer Certificates (GBCs) are listed on the Frankfurt Stock Exchange.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since the Company&#146;s 1969 public offering in the United States of U.S.$9,000,000 principal
amount of its 6 1/2 % Convertible Debentures due 1984, there has been limited trading in the
over-the-counter market in the Company&#146;s ADRs. Since March&nbsp;16, 1998, each ADR represents one share
of the Company&#146;s common stock. The Company&#146;s ADSs had been quoted on the National Association of
Securities Dealers Automated Quotation system (&#147;NASDAQ&#148;) since 1972 under the symbol CANNY to
September&nbsp;13, 2000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;14, 2000, Canon listed its ADSs on the NYSE under the symbol CAJ. The table below
displays historical transition of high and low prices of our ADSs on NYSE.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>NYSE</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>(Canon Inc.)</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>(U.S. dollars)</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Period</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2001 Year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">42.900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">26.480</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2002 Year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40.400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30.150</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2003 Year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53.000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33.730</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2004 1(st) quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52.630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46.680</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;2(nd) quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53.940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46.920</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;3(rd) quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53.350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44.440</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;4(th) quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54.390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47.290</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2004 Year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54.390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44.440</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2005 1(st) quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54.490</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50.530</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;2(nd) quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55.710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51.000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;3(rd) quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55.050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48.960</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;4(th) quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60.420</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51.570</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2005 Year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60.420</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48.960</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>NYSE</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>(Canon Inc.)</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>(U.S. dollars)</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Period</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2005 July</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">55.050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">48.960</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;August</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51.970</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49.010</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;September</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54.280</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50.400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;October</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.060</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51.570</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;November</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57.840</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52.300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;December</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60.420</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57.010</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2006 January</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63.920</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59.540</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;February</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62.900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59.440</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;March</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66.930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60.650</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;The depositary and agent of the ADRs is JPMorgan Chase Bank, located at 1 Chase Manhattan Plaza, New York, N.Y. 10081, U.S.A.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;Co-ownership shares in a GBCs are listed on the Frankfurt Stock Exchange.
</DIV>
<DIV align="left">
<A name="161"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;<B>B.&nbsp;Plan of distribution</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="162"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;<B>C.&nbsp;Markets</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See Item&nbsp;9A &#147;Offer and Listing Details.&#148;
</DIV>

<P align="center" style="font-size: 10pt">49
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="163"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;10. Additional Information</B>

<DIV align="left">
<A name="164"></A>
</DIV>

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>A.&nbsp;Share capital</B>

<P align="left" style="font-size: 10pt"><DIV style="margin-left:15px; font-size: 10pt; text-indent:-0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="165"></A>
</DIV>

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>B.&nbsp;Memorandum and articles of association</B>

<P align="left" style="font-size: 10pt"><I>Objects and Purposes in Canon Inc. (the &#147;Company&#148;)&#146;s Articles of Incorporation</I>

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Objects of the Company provided in Article&nbsp;2 of the Company&#146;s Articles of Incorporation shall
be to engage in the following business:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Manufacture and sale of optical machineries and instruments of various kinds.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Manufacture and sale of acoustic, electrical and electronic machineries and instruments of
various kinds.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Manufacture and sale of precision machineries and instruments of various kinds.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Manufacture and sale of medical machineries and instruments of various kinds.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Manufacture and sale of general machineries, instruments and equipments of various kinds.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Manufacture and sale of parts, materials, etc. relative to the products mentioned in each of
the preceding items.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Production and sale of software products.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(8)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Manufacture and sale of pharmaceutical products</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(9)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Telecommunications business, and information service business such as information processing service business, information providing
service business, etc.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(10)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Contracting for telecommunications works, electrical works and machinery and equipment installation works.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(11)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Sale, purchase and leasing of real properties and contracting for architectural works.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(12)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Manpower providing business, property leasing business and travel business.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(13)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Business relative to investigation, analysis of the environment and purification process of soil, water, etc.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(14)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any and all business relative to each of the preceding items.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt"><I>Provisions Regarding Directors</I>

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There is no provision in the Company&#146;s Articles of Incorporation as to a Director&#146;s power to
vote on a proposal, arrangement or contract in which the Director is materially interested, but,
under the Commercial Code of Japan, a director is required to refrain from voting on such matters
at meetings of the board of directors.

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Commercial Code provides that compensation for directors is determined at a general
meeting of shareholders of a company. Within the upper limit approved by the shareholders&#146; meeting,
the board of directors will determine the amount of compensation for each director. The board of
directors may, by its resolution, leave such decision to the discretion of the company&#146;s
representative director.

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Commercial Code provides that the incurrence by a company of a significant loan from a
third party should be approved by the company&#146;s board of directors. The Company&#146;s Regulations of
the Board of Directors have adopted this policy.

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There is no mandatory retirement age for the Company&#146;s Directors under the Commercial Code or
its Articles of Incorporation.

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There is no requirement concerning the number of shares an individual must hold in order to
qualify him as a Director of the Company under the Commercial Code or its Articles of
Incorporation.

<P align="left" style="font-size: 10pt"><I>Holding of Shares by Foreign Investors</I>

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other than the Japanese unit share system that is described in &#147;Rights of Shareholders -
Japanese Unit Share System&#148; below, there are no limitations on the rights of non-residents or
foreign shareholders to hold or exercise voting rights on the Company&#146;s shares imposed by the laws
of Japan or the Company&#146;s Articles of Incorporation or other constituent documents.

<P align="left" style="font-size: 10pt"><I>Rights of Shareholders</I>

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Set forth below is information relating to the Company&#146;s common stock, including brief
summaries of the relevant provisions of its Articles of Incorporation and Regulations for Handling
of Shares, as currently in effect, and of the Commercial Code of Japan and related legislation.

<P align="center" style="font-size: 10pt">50
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>General</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s authorized share capital is 2,000,000,000 shares, of which 888,742,779 shares
were issued and outstanding as of December&nbsp;31, 2005. Under the Commercial Code, shares must be
registered and are transferable by delivery of share certificates. In order to assert shareholders&#146;
rights against the Company, a shareholder must have its name and address registered on its register
of shareholders, in accordance with the Company&#146;s Regulations for Handling of Shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A holder of shares may choose, at its discretion, to participate in the central clearing
system for share certificates under the Law Concerning Central Clearing of Share Certificates and
Other Securities of Japan. Participating shareholders must deposit certificates representing all of
the shares to be included in this clearing system with the Japan Securities Depository Center, Inc.
(the &#147;Securities Center&#148;). If a holder is not a participating institution in the Securities Center,
it must participate through a participating institution, such as a securities company or bank
having a clearing account with the Securities Center. All shares deposited with the Securities
Center will be registered in the name of the Securities Center on the Company&#146;s register of
shareholders. Each participating shareholder will in turn be registered on the Company&#146;s register
of beneficial shareholders and be treated in the same way as shareholders registered on its
register of shareholders. For the purpose of transferring deposited shares, delivery of share
certificates is not required. Entry of the share transfer in the books maintained by the Securities
Center for participating institutions, or in the book maintained by a participating institution for
its customers, has the same effect as delivery of share certificates. The registered beneficial
owners may exercise the rights attached to the shares, such as voting rights, and will receive
dividends (if any) and notices to shareholders directly from the Company. The shares held by a
person as a registered shareholder and those held by the same person as a registered beneficial
owner are aggregated for these purposes. Beneficial owners may at any time withdraw their shares
from deposit and receive share certificates, subject to the limitations caused by the Japanese unit
share system described below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A new law to establish a new central clearing system for shares of listed companies and to
eliminate the issuance and use of certificates for such shares was promulgated in June&nbsp;2004 and the
relevant law will come into effect within five years of the date of promulgation. On the effective
date, a new central clearing system will be established and the shares of all Japanese companies
listed on any Japanese stock exchange, including the Company&#146;s shares, will be subject to the new
central clearing system. On the same day, all existing share certificates for share of all
Japanese companies listed on any Japanese stock exchange, including the Company&#146;s shares, will
become null and void and the transfer of such shares will be effected through entry in the books
maintained under the new central clearing system.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registered beneficial holder of deposited shares underlying the ADSs is the depositary for
the ADSs. Accordingly, holders of ADSs will not be able to directly assert shareholders&#146; rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Dividends</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Company&#146;s Articles of Incorporation, its financial accounts will be closed on
December&nbsp;31 of each year and dividends, if any, will be distributed to shareholders (or pledgees)
written or recorded in the register of shareholders as of the close of business on that date
following approval at its ordinary general meeting of shareholders. In addition, by resolution of
the board of directors, the Company may distribute interim dividends to the shareholders (or
pledgees) written or recorded in the register of shareholders as of June&nbsp;30 each year. Dividends
will be distributed in cash.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Commercial Code provides that, until the aggregate amount of the Company&#146;s legal reserve
and additional paid-in capital is at least one-quarter of its stated capital, it may not make any distribution of profits by way of annual cash dividends or
interim dividends unless it sets aside in its legal reserve an amount equal to at least one-tenth
of any amount that it pays out as an appropriation of retained earnings, including any payment by
way of annual or interim dividends and bonuses to Directors and Corporate Auditors. The Commercial
Code will permit the Company to distribute profits by way of dividends out of the excess of the net
assets, on a non-consolidated basis, over the aggregate of:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(1)</TD>
<TD width="1%">&nbsp;</TD>
<TD>the stated capital;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(2)</TD>
<TD width="1%">&nbsp;</TD>
<TD>the additional paid-in capital;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(3)</TD>
<TD width="1%">&nbsp;</TD>
<TD>the accumulated legal reserve;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(4)</TD>
<TD width="1%">&nbsp;</TD>
<TD>the legal reserve to be set aside in respect of the dividends concerned and proposed payment by
way of appropriation of retained earnings; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(5)</TD>
<TD width="1%">&nbsp;</TD>
<TD>other matters specified in the Implementation Ordinance of the Commercial Code.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the case of interim dividends, the net assets are calculated by reference to the
non-consolidated balance sheet as at the last closing of the Company&#146;s accounts, but adjusted to
reflect (i)&nbsp;any subsequent payment by way of appropriation of retained earnings and transfer to
legal reserve in respect thereof, (ii)&nbsp;any subsequent transfer of retained earning to stated
capital, (iii)&nbsp;if it has been authorized, pursuant to a resolution of a general meeting of
shareholders, to purchase shares (see &#147;Repurchase by the Company of Shares&#148; below) the total amount
of the purchase price of such share so authorized by such resolution that may be paid by the
Company and (iv)&nbsp;other matters specified in the Implementation Ordinance of the Commercial Code.
Interim dividends may not be paid where there is a risk that at the end of the fiscal year there
might not be any excess of net assets over the aggregate of the amounts referred to in (1)&nbsp;through
(5)&nbsp;above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Stock Splits</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Commercial Code permits the Company, by resolution of its board of directors, to make
stock splits, regardless of the value of net assets (as appearing in its latest non-consolidated
balance sheet) per share. Under the Commercial Code, when the Company issues new shares in the
future, the entire amount of issue price of those new shares is required to be accounted for as
stated capital, although it may account for an amount not exceeding one-half of the issue price as
additional paid-in capital. By resolution of the Company&#146;s board of directors, the Company may make
a stock split within an amount of stated capital or by transferring the whole or any part of
additional paid-in capital and legal reserve to stated capital.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Commercial Code, by resolution of the Company&#146;s board of directors, the Company may
increase the authorized shares up to the number reflecting the rate of stock splits and amend its
Articles of Incorporation by resolution of its board of directors to this effect without the
approval of a shareholders&#146; meeting. For example, if each share became three shares by way of a
stock split, the Company may increase the authorized shares from the current 2,000,000,000 shares
to 6,000,000,000 shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Japanese Unit Share System</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s Articles of Incorporation provided that 100 shares of common stock constitute
one &#147;unit&#148;. The Commercial Code of Japan permits the Company, by resolution of its board of
directors, to reduce the number of shares which constitutes one unit or abolish the unit share
system, and amend its Articles of Incorporation to this effect without the approval of a
shareholders&#146; meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Transferability of Shares Representing Less than One Unit</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company may not issue share certificates for a number of shares not constituting an
integral number of units, except in limited circumstances. Because the transfer of shares normally
requires delivery of the share certificates for the shares being transferred, shares constituting a
fraction of a unit and for which no share certificates are issued may not be transferable. Because
transfer of ADRs does not require a change in the ownership of the underlying shares, holders of
ADRs evidencing ADSs that constitute less than one unit of shares are not affected by these
restrictions in their ability to transfer the ADRs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;However, because transfers of less than one unit of the underlying shares are normally prohibited
under the unit share system, the deposit agreement provides that the right of ADR holders to
surrender their ADRs and withdraw the underlying shares for sale in Japan may only be exercised as
to whole units.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Right of a Holder of Shares Representing Less than One Unit to Require the Company to Purchase Its
Shares</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A holder of shares representing less than one unit may at any time require the Company to
purchase its shares. These shares will be purchased at (a)&nbsp;the closing price of the shares reported
by the Tokyo Stock Exchange, Inc. (the &#147;Tokyo Stock Exchange&#148;) on the day when the request to
purchase is made or (b)&nbsp;if no sale takes place on the Tokyo Stock Exchange on that day, then the
price at which sale of shares is effected on such stock exchange immediately thereafter. In such
case, the Company will request payment of an amount equal to the brokerage commission applicable to
the shares purchased pursuant to its Regulations for Handling of Shares. However, because holders
of ADSs representing less than one unit are not able to withdraw the underlying shares from
deposit, these holders will not be able to exercise this right as a practical matter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Right of a Holder of Shares Representing Less than One Unit to Purchase from the Company its Shares
up to a Whole Unit</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Articles of Incorporation of the Company provide that a holder of shares representing less
than one unit may require the Company to sell its shares to such holder so that the holder can
raise its fractional ownership to a whole unit. These shares will be sold at (a)&nbsp;the closing price
of the shares reported by the Tokyo Stock Exchange on the day when the request to sell becomes
effective or (b)&nbsp;if no sale has taken place on the Tokyo Stock Exchange on that day, then the price
at which sale of shares is effected on such stock exchange immediately thereafter. In such case,
the Company will request payment of an amount equal to the brokerage commission applicable to the
shares sold pursuant to its Regulations for Handling of Shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Voting Rights of a Holder of Shares Representing Less than One Unit</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A holder of shares representing less than one unit cannot exercise any voting rights
pertaining to those shares. In calculating the quorum for various voting purposes, the aggregate
number of shares representing less than one unit will be excluded from the number of outstanding
shares. A holder of shares representing one or more whole units will have one vote for each whole
unit represented.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A holder of shares representing less than one unit does not have any rights relating to
voting, such as the right to participate in a demand for the resignation of a director, the right
to participate in a demand for the convocation of a general meeting of shareholders and the right
to join with other shareholders to propose an agenda item to be addressed at a general meeting of
shareholders. In addition, a holder of shares constituting less than one unit does not have the
right to require the Company to issue share certificates for those shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;However, a holder of shares constituting less than one unit has all other rights of a
shareholder in respect of those shares, including the following rights:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to receive annual and interim dividends,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to receive shares and/or cash by way of retirement, consolidation, subdivision, conversion, exchange or transfer of shares, company split or merger,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to be allotted rights to subscribe for new shares and other securities when such rights are granted to shareholders,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to participate in any distribution of surplus assets upon liquidation,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to institute a representative action by shareholders, and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to demand that a director suspend illegal and certain other acts.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Ordinary and Extraordinary General Meeting of Shareholders</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company normally holds its ordinary general meeting of shareholders in March of each year
in Ohta-ku, Tokyo or in a neighbouring area. In addition, the Company may hold an extraordinary
general meeting of shareholders whenever necessary by giving at least two weeks&#146; advance notice.
Under the Commercial Code, notice of any shareholders&#146; meeting must be given to each shareholder
having voting rights or, in the case of a non-resident shareholder, to his resident proxy or
mailing address in Japan in accordance with the Company&#146;s Regulations for Handling of Shares, at
least two weeks prior to the date of the meeting.
</DIV>

<P align="center" style="font-size: 10pt">52
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Voting Rights</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A shareholder is generally entitled to one vote per one unit of shares as described in this
paragraph and under &#147;Japanese Unit Share System&#148; above. In general, under the Commercial Code, a
resolution can be adopted at a general meeting of shareholders by a majority of the shares having
voting rights represented at the meeting. The Commercial Code and the Company&#146;s Articles of
Incorporation require a quorum for the election of Directors and Corporate Auditors of not less
than one-third of the total number of outstanding shares having voting rights. The Company&#146;s
shareholders are not entitled to cumulative voting in the election of Directors. A corporate
shareholder whose outstanding shares are in turn more than one-quarter directly or indirectly owned
by the Company does not have voting rights. Shareholders may exercise their voting rights through
proxies, provided that those proxies are also shareholders who have voting rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the Commercial Code and the Company&#146;s Articles of Incorporation, a quorum of, not
less than one-third of the outstanding shares with voting rights must be present at a shareholders&#146;
meeting to approve any material corporate actions such as:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a reduction of stated capital,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>amendment of the articles of incorporation (except amendments which the board of directors are
authorized to make under the Commercial Code as described in
&#147;Stock Splits&#148; and &#147;Japanese Unit Share
System&#148; above),</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the removal of a director or corporate auditor,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>establishment of a 100% parent-subsidiary relationship by way of share exchange or share transfer,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a dissolution, merger or consolidation,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a corporate separation,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the transfer of the whole or an important part of the Company&#146;s business,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the taking over of the whole of the business of any other corporation,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any issuance of new shares at a &#147;specially favourable&#148; price, stock acquisition rights
(<I>shinkabu yoyakuken</I>) with &#147;specially favourable&#148; conditions or bonds with stock acquisition
rights (<I>shinkabu yoyakuken-tsuki shasai</I>) with &#147;specially
favourable&#148; conditions to persons other
than shareholders, and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>release of part of directors&#146; or corporate
auditors&#146; liabilities to their corporation.<BR><BR>At least
two-thirds of the outstanding shares having voting rights present at
the meeting must approve these actions.<BR><BR>The voting rights of holders of ADSs are exercised by the depositary based on instructions from those holders.</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Subscription Rights</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders of shares have no pre-emptive rights. Authorised but unissued shares may be issued at
such times and upon such terms as the board of directors determines, subject to the limitations as
to the issue of new shares at a &#147;specially favourable&#148; price mentioned in &#147;Voting Rights&#148; above.
The board of directors may, however, determine that shareholders be given subscription rights to
new shares, in which case they must be given on uniform terms to all shareholders as of a record
date of which not less than two weeks&#146; prior public notice of the date on which such subscription
rights must be given. Each of the shareholders to whom such rights are given must also be given at
least two weeks&#146; prior notice of the date on which such rights will expire.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Stock Acquisition Rights</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company may issue stock acquisition rights or bonds with stock acquisition rights (in
relation to which the stock acquisition rights are undetachable). Except where the issue would be
on &#147;specially favourable&#148; conditions mentioned in &#147;Voting Rights&#148; above, the issue of stock
acquisition rights or bonds with stock acquisition rights may be authorised by a resolution of the
board of directors. Subject to the terms and conditions thereof, holders of stock
acquisition rights may acquire a prescribed number of shares by exercising their stock acquisition
rights and paying the exercise price at any time during the exercise period thereof. Upon exercise
of stock acquisition rights, the Company will be obliged to either issue the relevant number of new
shares or transfer the necessary number of existing shares held by it as treasury stock to the
holder. The entitlements accorded to stock acquisition rights attached to bonds are substantially
similar to those accorded to stock acquisition rights issued without being attached to bonds,
provided that, if so determined by the board of directors at the time of its resolution authorising
the issue of the relevant bonds with stock acquisition rights, then, upon exercise of the stock
acquisition rights, their exercise price will be deemed to have been paid by the holder thereof to
the Company in lieu of the Company redeeming the relevant bonds.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Liquidation Rights</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event of liquidation, the assets remaining after payment of all debts, liquidation
expenses and taxes will be distributed among the shareholders in proportion to the number of shares
they own.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Liability to Further Calls or Assessments</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of the Company&#146;s currently outstanding shares, including shares represented by the ADSs,
are fully paid and nonassessable.
</DIV>

<P align="center" style="font-size: 10pt">53
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Transfer Agent</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mizuho Trust &#038; Banking Co., Ltd. is the transfer agent for the Company&#146;s shares. Mizuho
Trust&#146;s office is located at 2-1, Yaesu 1-chome, Chuo-ku, Tokyo, Japan. Mizuho Trust maintains the
Company&#146;s register of shareholders and records transfers of record ownership upon presentation of
share certificates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Record Date</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The close of business on December&nbsp;31 is the record date for the Company&#146;s year-end dividends,
if paid. June&nbsp;30 is the record date for interim dividends, if paid. A holder of shares constituting
one or more whole units who is registered as a holder on the Company&#146;s register of shareholders at
the close of business as of December&nbsp;31 is also entitled to exercise shareholders&#146; voting rights at
the ordinary general meeting of shareholders with respect to the fiscal year ending on December&nbsp;31.
In addition, the Company may set a record date for determining the shareholders entitled to other
rights and for other purposes by giving at least two weeks&#146; public notice.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The shares generally trade ex-dividend or ex-rights in the Japanese stock exchanges on the
third business day before a record date (or if the record date is not a business day, the fourth
business day prior thereto), for the purpose of dividends or rights offerings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Repurchase by the Company of Shares</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Commercial Code, the Company may acquire its shares for any purposes subject to the
authorization of shareholders at an ordinary general shareholders meeting. In addition, the Company
is authorized to purchase its shares pursuant to a resolution of the board of directors pursuant to
its Articles of Incorporation. The acquisition is subject to the condition that the aggregate
amount of the purchase price must not exceed the amount of the retained earnings available for
dividend payments less the sum of any amount paid or to be paid by way of appropriation of related
earnings and any transfer of retained earnings to stated capital.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the case of shares listed on a Japanese stock exchange, acquisition shall be made through
the market or by way of tender offer by the close of the following ordinary general meeting, unless
acquisition of the shares from a specified person is authorized by the approval of two-thirds of
outstanding shares having voting rights present at the shareholders&#146; meeting at which a quorum of
at least one-third of the outstanding shares having voting rights must be present.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the Company may acquire its shares by means of repurchase of any number of shares
constituting less than one unit upon the request of the holder of those shares, as described under
&#147;Japanese Unit Share System&#148; above.
</DIV>
<DIV align="left">
<A name="166"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>C.&nbsp;Material contracts</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All contracts entered into by us during the two years preceding the date of this annual report
were entered into in the ordinary course of business.
</DIV>
<DIV align="left">
<A name="167"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>D.&nbsp;Exchange controls</B>
</DIV>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(a)</TD>
<TD width="1%">&nbsp;</TD>
<TD>Information with respect to Japanese exchange regulations affecting the Company&#146;s
security holders is as follows:</TD>
</TR>

</TABLE>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Foreign Exchange and Foreign Trade Law of Japan, as amended and effective from
April&nbsp;1, 1998, and the cabinet orders and ministerial
ordinances thereunder (the &#147;Foreign Exchange Regulations&#148;) govern certain aspects relating
to the issuance of securities by the Company and the acquisition and holding of such
securities by &#147;non-residents of Japan&#148; and by &#147;foreign investors&#148;, as hereinafter defined.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Non-residents of Japan&#148; are defined as individuals who are not resident in Japan and
corporations whose principal offices are located
outside Japan. Generally, branches and other offices of Japanese corporations located
outside Japan are regarded as non-residents of
Japan, while branches and other offices located within Japan of non-resident corporations
are regarded as residents of Japan. &#147;Foreign
investors&#148; are defined to be (i)&nbsp;individuals not resident in Japan, (ii)&nbsp;corporations which
are organized under the laws of foreign
countries or whose principal offices are located outside Japan, (iii)&nbsp;corporations of which
50% or more of the shares are held by (i)&nbsp;and /
or (ii)&nbsp;above and (iv)&nbsp;corporations in respect of which (a)&nbsp;a majority of the officers are
non-resident individuals or (b)&nbsp;a majority of the
officers having the power to represent the corporation are non-resident individuals.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD>Issuance of Securities by the Company:</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Foreign Exchange Regulations, the issue of securities outside Japan by the
Company is, in principle, not subject to a prior
notification requirement, but subject to a post reporting requirement of the Minister of
Finance. Under the Foreign Exchange Regulations as
currently in effect, payments of principal, premium and interest in respect of securities
and any additional amounts payable pursuant to
the terms thereof may in general be paid when made without any restrictions under the
Foreign Exchange Regulations.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD>Acquisition of Shares:</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In general, the acquisition of shares of stock of a Japanese company listed on any Japanese
stock by a non-resident of Japan from a resident of Japan is not subject to a prior
notification requirement, but subject to a post reporting requirement of the Minister of
Finance by such resident.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the case where a foreign investor intends to acquire listed shares (whether from a
resident or a non-resident of Japan, from another
foreign investor or from or through a designated securities company) and as a result of
such acquisition the number of shares held, directly or indirectly, by such foreign investor would become 10% or more of the total
outstanding shares of the company, the foreign investor
must generally report such acquisition to the Minister of Finance and other Ministers having
jurisdiction over the business of the subject
company within 15&nbsp;days from and including the date of such acquisition. In certain
exceptional cases, a prior notification is required in respect
of such acquisition.</TD>
</TR>


</TABLE>

<P align="center" style="font-size: 10pt">54
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Acquisition of Shares upon Exercise of Rights for Subscription of Shares:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The acquisition by a non-resident of Japan of shares upon exercise of his rights for
subscription of shares is exempted from the notification
and reporting requirements described under &#147;Acquisition of Shares&#148; above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Dividends and Proceeds of Sales:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 1%">&nbsp;&nbsp;Under the Foreign Exchange Regulations currently in effect, dividends paid on, and the
proceeds of sale in Japan of, the shares held by
non-residents of Japan may be converted into any foreign currency and repatriated abroad.
The acquisition of shares by non-resident
shareholders by way of stock splits is not subject to any of the aforesaid notification
requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;(b)&nbsp;Reporting of Substantial Shareholdings:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Securities and Exchange Law of Japan requires any person who has become,
beneficially and solely or jointly, a holder of more than 5% of the total outstanding voting shares of capital stock of a company listed on any Japanese
stock exchange to file with the relevant Local Finance Bureau of the Minister of Finance
within five business days a report concerning such share ownership. A similar report must
also be made in respect of any subsequent change of 1% or more in any such holding. Copies
of any such report must also be furnished to the issuer of such shares and all Japanese
stock exchanges on which the shares are listed. For this purpose, shares issuable exercise
of rights for subscription of shares held by such holder are taken into account in
determining both the size of a holding and a company&#146;s total outstanding share capital.
</DIV>
<DIV align="left">
<A name="168"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>E.&nbsp;Taxation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">1. Taxation in Japan
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally, a non-resident of Japan or non-Japanese corporation ( &#147;Non-Resident Holders&#148;)
is subject to Japanese withholding tax on dividends paid by Japanese corporations. Stock splits
are not subject to Japanese income tax. Due to the 2001 Japanese tax legislation, a conversion
of retained earnings or legal reserve (but, not additional paid-in capital, in general) into
stated capital (whether made in connection with a stock split or otherwise) is no longer
treated as a deemed dividend payment to shareholders for Japanese tax purposes. Thus, such a
conversion does not trigger Japanese withholding taxation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Japan is party to a number of income tax treaties, conventions and agreements,
(collectively &#147;Tax Treaties&#148;), whereby the maximum withholding tax rate for dividend payments
is set at, in most cases, 15% for portfolio investors who are Non-Resident Holders. Specific
countries with which such Tax Treaties have been entered into include Australia, Belgium,
Canada, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands, New
Zealand, Norway, Singapore, Spain, Sweden, Switzerland and the United Kingdom. Pursuant to the
new tax convention between the United States and Japan ratified in March&nbsp;2004 (&#147;New Tax
Convention&#148;), the withholding tax rate on dividends paid by a Japanese corporation to US
residents or corporations is generally 10%, provided the recipients are portfolio investors who
do not have a permanent establishment in Japan to which the shares with respect to which such
dividends are paid are related and such recipients are qualified US residents eligible to enjoy
treaty benefits. This 10% Japanese withholding tax rate is applicable from July&nbsp;1, 2004 to
dividends declared thereafter. Under the New Tax Convention, there is no withholding tax on
dividends paid by Japanese Corporations to pension funds which are qualified U.S. residents
eligible to enjoy benefits under the New Tax Conventions unless such dividends are derived from
the carrying on of a business, directly or indirectly, by such pension funds. The 15% Japanese
withholding tax rate under the old tax convention is still applicable to dividends declared
before July&nbsp;1, 2004. However, under the Japanese Income Tax Law, the temporary rate of Japanese
withholding tax applicable to dividends paid with respect to listed shares, such as those paid
by the Company, to Non-Resident Holders is currently 7% which is applicable for the period from
January&nbsp;1, 2004 to March&nbsp;31, 2008 (15% rate(10% for eligible US residents) will apply
thereafter), except for dividends paid to any individual shareholder who holds 5% or more of
the total issued shares for which the applicable rate is 20%. While the treaty rate normally
overrides the domestic rate, due to the so-called preservation doctrine, if the tax rate under
the domestic tax law is lower than that promulgated under the applicable income tax treaty,
then the domestic tax rate is still applicable. If the domestic tax rate applies, as will
generally be the case until March&nbsp;31, 2008 for most shareholders who are US residents or
corporations, no treaty application is required to be filed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">2. Taxation in the United States
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a discussion of material U.S. federal income tax consequences of
purchasing, owning and disposing of Canon shares or ADSs to the
persons described below, but it does not purport to be a comprehensive description of all of
the tax considerations that may be relevant to a particular person&#146;s decision to acquire, hold
or dispose of such securities. The discussion applies only if you hold Canon shares or ADSs as
capital assets for U.S.
federal income tax purposes and it does not address special classes of holders, such as:
</DIV>


<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>certain financial institutions;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>insurance companies;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>dealers and traders in securities or foreign currencies;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>persons holding Canon shares or ADSs as part of a hedge, straddle,
conversion or other integrated transaction;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>persons whose functional currency for U.S. federal income tax purposes
is not the U.S. dollar;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>partnerships or other entities classified as partnerships for U.S.
federal income tax purposes;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>persons liable for the alternative minimum tax;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>tax-exempt organizations;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>persons holding Canon shares or ADSs that own or are deemed to own
10% or more of any class of Canon stock; or</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>persons who acquired Canon shares or ADSs pursuant to the exercise of
any employee stock option or otherwise as compensation.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">55
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This discussion is based on the Internal Revenue Code of 1986, as amended, administrative
pronouncements, judicial decision and final, temporary and proposed Treasury regulations, all as
currently in effect. These laws are subject to change, possibly on a retroactive basis. It is also
based in part on representations by the depositary and assumes that each obligation under the
deposit agreement and any related agreement will be performed in accordance with its terms. Please
consult your own tax advisers concerning the U.S. federal, state, local and foreign tax
consequences of purchasing, owning and disposing of Canon shares or ADSs in your particular
circumstances.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The discussion below applies to you only if you are a beneficial owner of Canon shares or ADSs
and are, for U.S. federal tax purposes:
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a citizen or resident of the United States;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a corporation, or other entity taxable as a corporation, created or organized in or under
the laws of the United States or any political
subdivision thereof; or</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>an estate or trust the income of which is subject to U.S. federal income taxation regardless
of its source.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In general, if you hold ADSs, you will be treated for U.S. federal income tax purposes as the
holder of the underlying shares represented by those ADSs. Accordingly, no gain or loss will be
recognized if you exchange ADSs for the underlying shares represented by those ADSs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The U.S. Treasury has expressed concerns that parties to whom ADSs are pre-released may be
taking actions that are inconsistent with the claiming of foreign tax credits for U.S. holders of ADSs. Such actions would also be inconsistent with the
claiming of the reduced rate of tax applicable to dividends received by certain non-corporate U.S.
holders. Accordingly, the analysis of the creditability of Japanese taxes and the reduced rates of
taxation applicable to dividends received by certain non-corporate U.S. holders, both as described
below, could be affected by actions that may be taken by parties to whom ADSs are pre-released.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This discussion assumes that Canon was not a passive foreign investment company
for 2005, as described below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Taxation of Distributions
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Distributions paid on Canon Shares or ADSs, other than certain pro rata distributions of
common shares, to the extent paid out of Canon&#146;s current or accumulated earnings and profits, as
determined under U.S. federal income tax principles, will be treated as dividends. The amount of
a dividend will include any amounts withheld by Canon or its paying agent in respect of Japanese
taxes. The amount of the dividend will be treated as foreign-source dividend income to you and
will not be eligible for the dividends-received deduction generally allowed to U.S. corporations.
Subject to applicable limitations that may vary depending upon a U.S. holder&#146;s individual
circumstances and the concerns expressed by the U.S. Treasury, dividends paid to certain
non-corporate holders in taxable years beginning before January&nbsp;1, 2009 will be taxable at a
maximum rate of 15%. Non-corporate U.S. holders should consult their own tax advisers to
determine whether they are subject to any special rules that limit their ability to be taxed at
this favorable rate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends paid in Japanese yen will be included in your income in a U.S. dollar amount
calculated by reference to the exchange rate in effect on the
date of receipt of the dividend by you, in the case of Canon shares, or by the depository, in the
case of ADSs, regardless of whether the payment is in fact converted into U.S. dollars. If the
dividend is converted into U.S. dollars on the date of receipt, you generally should not be
required to recognize foreign currency gain or loss in respect of the dividend income. You may
have foreign currency gain or loss if you do not convert the amount of such dividend into U.S.
dollars on the date of receipt.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Japanese taxes withheld from cash dividends on Canon shares or ADSs will be creditable
against your U.S. federal income tax liability, subject to
applicable limitations that may vary depending upon your circumstances and the concerns expressed
by the U.S. Treasury. Instead of claiming a credit, you may, at your election, deduct such
Japanese taxes in computing your taxable income, subject to generally applicable limitations under
U.S. law. The limitation on foreign taxes eligible for credit is calculated separately with
respect to specific classes of income. You should consult your own tax adviser to determine
whether you are subject to any special rules that limit your ability to make effective use of
foreign tax credits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Sale and Other Disposition of Canon Shares or ADSs
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For U.S. federal income tax purposes, gain or loss you realize on the sale or other
disposition of Canon shares or ADSs will be capital gain or loss,
and will be long-term capital gain or loss if you held the Canon shares or ADSs for more than one
year. The amount of your gain or loss will be equal to the difference between your tax basis in the Canon shares or ADSs disposed of and the amount
realized on the disposition. Such gain or loss will generally
be U.S. source gain or loss for foreign tax credit purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Passive Foreign Investment Company Rules
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon believes that it was not a passive foreign investment company (&#147;PFIC&#148;) for U.S. federal
income tax purposes for 2005. However, since PFIC status depends upon the composition of Canon&#146;s
income and assets and the market value of its assets (including, among others, goodwill and equity
investments in less than 25 % owned entities) from time to time, there can be no assurance that
Canon will not be considered a PFIC for any taxable year. If Canon were treated as a PFIC for any
taxable year during which you held Canon shares or ADSs, certain adverse taxconsequences could
apply to you.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If Canon were treated as a PFIC for any taxable year, gain recognized by you on the sale or
other disposition of Canon shares or ADSs would be allocated
ratably over you holding period for such securities. The amounts allocated to the taxable year of
the sale or other disposition and to any year before Canon became a PFIC would be taxed as
ordinary income. The amount allocated to each other taxable year would be subject to tax at the
highest rate in effect
for individuals or corporations, as appropriate, and an interest charge would be imposed on the
tax liability attributable to such allocated amounts. Further,
any distribution in respect of Canon shares or ADSs in excess of 125 % of the average of the
annual distributions on such securities received by you
during the preceding three years or your holding period, whichever is shorter, would be subject to
taxation as described above. Certain elections (including
a mark-to-market election) may be available to you that may mitigate the adverse tax consequences
resulting from PFIC status.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, if Canon were treated as a PFIC in a taxable year in which it pays a dividend or
the prior taxable year, the 15% dividend rate discussed above with respect to dividends paid to
certain non-corporate U.S.&nbsp;holders would not apply.
</DIV>

<P align="center" style="font-size: 10pt">56
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Information Reporting and Backup Withholding
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payment of dividends and sales proceeds that are made within the United States or through
certain U.S.-related financial intermediaries generally are
subject to information reporting and to backup withholding unless you are a corporation or other
exempt recipient or, in the case of backup withholding, you provide a correct taxpayer
identification number and certify that no loss of exemption from backup withholding has occurred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amount of any backup withholding from a payment to you will be allowed as a credit
against your U.S. federal income tax liability and may
entitle you to a refund, provided that the required information is furnished to the Internal
Revenue Service.
</DIV>
<DIV align="left">
<A name="169"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>F.&nbsp;Dividends and paying agents</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="170"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>G.&nbsp;Statement by experts</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="171"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>H.&nbsp;Documents on display</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to the Securities Exchange Act of 1934, as amended, the Company is subject to the
requirements of informational disclosure. The Company files
various reports and other information, including Form 20-F and Annual Reports, with the Securities
Exchange Commission and the New York Stock Exchange. These reports may be inspected at the
following sites.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Securities Exchange Commission:<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;450 Fifth Street, N.W., Washington D.C. 20549
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;New York Stock Exchange:<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20 Broad Street, New York, New York 10005
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Form&nbsp;20-F
is also available at the Electronic Data Gathering, Analysis, Retrieval system (EDGAR)&nbsp;website which is maintained by the Securities Exchange Commission.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Securities Exchange Commission Home Page:<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;http://www.sec.gov
</DIV>
<DIV align="left">
<A name="172"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>I.&nbsp;Subsidiary information</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="173"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;11. Quantitative and Qualitative Disclosures About Market Risk</B>
</DIV>

<DIV align="left">
<A name="174"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Market risk exposures</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon is exposed to market risks, including changes in foreign currency exchange rates,
interest rates and prices of marketable securities and investments. In order to hedge the risks of
changes in foreign currency exchange rates and interest rates, Canon uses derivative financial
instruments.
</DIV>

<P align="center" style="font-size: 10pt">57
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="175"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Equity price risk</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon holds marketable securities included in current assets as short-term investments, which
consists generally of highly-liquid and low-risk instruments. Investments included in noncurrent
assets are held as long-term investments. Canon does not hold marketable securities and investments
for trading purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Maturities and fair values of such marketable securities and investments were as follows at
December&nbsp;31, 2005 and 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Available-for-sale securities
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Cost</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Fair value</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Cost</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Fair value</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Due within one year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">301</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">341</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Due after one year through five years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,811</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,243</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,607</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,191</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Due after five years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,352</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,376</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,049</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,047</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,474</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,302</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,950</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">16,708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">33,240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">13,259</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">30,529</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Held-to-maturity securities
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Cost</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Fair value</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Cost</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Fair value</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Due after one year through five years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">20,961</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">20,961</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">21,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">21,460</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left">
<A name="176"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Foreign currency exchange rate and interest rate risk</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon operates internationally, exposing it to the risk of changes in foreign currency
exchange rates and interest rates. Derivative financial instruments are comprised principally of
foreign currency exchange contracts and interest rate swaps utilized by the Company and certain of
its subsidiaries to reduce these risks. Canon assesses foreign currency exchange rate risk and
interest rate risk by continually monitoring changes in these exposures and by evaluating hedging
opportunities. Canon does not hold or issue derivative financial instruments for trading purposes.
Canon is also exposed to credit-related losses in the event of non-performance by counterparties
to derivative financial instruments, but it is not expected that any counterparties will fail to
meet their obligations, because most of the counterparties are internationally recognized financial
institutions and contracts are diversified across a number of major financial institutions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s international operations expose Canon to the risk of changes in foreign currency
exchange rates. Canon uses foreign exchange contracts to manage certain foreign currency exchange
exposures principally from the exchange of U.S. dollar and euro into Japanese yen. These contracts
are primarily used to hedge the foreign currency exposure of forecasted intercompany sales and
intercompany trade receivables which are denominated in foreign currencies. In accordance with
Canon&#146;s policy, a specific portion of foreign currency exposure resulting from forecasted
intercompany sales are hedged using foreign exchange contracts which principally mature within
three months.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table provides information about Canon&#146;s major derivative financial instruments
related to foreign currency exchange transactions existing at December&nbsp;31, 2005. All of the foreign
exchange contracts described in the following table have a contractual maturity date in 2006.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>Millions of yen</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>U.S.$</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>euro</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Others</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Forwards to sell foreign currencies:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Contract amounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">361,072</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">251,195</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">645,188</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Estimated fair value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,829</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,459</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(352</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,640</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Forwards to buy foreign currencies:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Contract amounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">30,033</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,974</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,417</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,424</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Estimated fair value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(296</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(893</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,172</TD>
    <TD nowrap>)</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s exposure to the risk of changes in interest rates relates primarily to its debt
obligations. The variable-rate debt obligations expose Canon to variability in their cash flows
due to change in interest rates. To manage the variability in cash flows caused by interest rate
changes, Canon enters into interest rate swaps when it is determined to be appropriate based on
market conditions. The interest rate swaps change variable-rate debt obligations to fixed-rate
debt obligations by primarily entering into pay-fixed, receive-variable interest rate swaps.
</DIV>

<P align="center" style="font-size: 10pt">58
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Derivative financial instruments designated as fair value hedges principally relate to
interest rate swaps associated with fixed-rate debt obligations. Changes in fair values of the
hedged debt obligations and derivative instruments designated as fair value hedges of these debt
obligations are recognized in other income (deductions). There is no hedging ineffectiveness or net
gains or losses excluded from the assessment of hedge effectiveness for fiscal 2004 and 2003 as the
critical terms of the interest rate swaps match the terms of the hedged debt obligations. Canon had
no fair value hedges in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes in the fair value of derivative financial instruments designated as cash flow hedges,
including foreign exchange contracts associated with forecasted intercompany sales and interest
rate swaps associated with variable rate debt obligations, are reported in accumulated other
comprehensive income (loss). These amounts are subsequently reclassified into earnings through
other income (deductions)&nbsp;in the same period as the hedged items affect earnings. Substantially all
amounts recorded in accumulated other comprehensive income (loss)&nbsp;at year-end are expected to be
recognized in earnings over the next twelve months. Canon excludes the time value component from
the assessment of hedge effectiveness.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amounts of the hedging ineffectiveness are not material for the years ended December&nbsp;31,
2005, 2004 and 2003. The amounts of net gains or losses excluded from the assessment of hedge
effectiveness which are recorded in other income (deductions)&nbsp;are net losses of Yen 3,725&nbsp;million,
Yen 2,096&nbsp;million and Yen 490&nbsp;million for the years ended December&nbsp;31, 2005, 2004 and 2003,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon has entered into certain foreign currency exchange contracts to manage its foreign
currency exposures. These foreign currency exchange contracts have not been designated as hedges.
Accordingly, the changes in fair values of the contracts are recorded in earnings immediately.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For debt obligations, the table below presents principal cash flows by expected maturity dates
and related weighted average interest rates, as of December&nbsp;31, 2005 and 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Long-term debt (including due within one year)</I>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="19%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted Average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="26" style="border-bottom: 1px solid #000000"><B>Expected maturity date</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>interest</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Estimated</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>rates*</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Thereafter</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>fair value</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="30"><B>(Millions of yen except interest rate data)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year ended
December&nbsp;31, 2005:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japanese yen notes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2.61</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">20,848</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japanese yen convertible
debentures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,052</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other long-term
debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,425</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,992</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,318</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">895</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">417</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">101</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,294</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">32,074</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,992</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">13,318</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">12,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">895</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">417</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">101</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">35,194</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="19%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted Average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="26" style="border-bottom: 1px solid #000000"><B>Expected maturity date</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>interest</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Estimated</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>rates*</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Thereafter</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>fair value</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="30"><B>(Millions of yen except interest rate data)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD colspan="2"><DIV style="margin-left:15px; text-indent:-15px">Year ended December&nbsp;31, 2004:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japanese yen notes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2.46</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">25,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">5,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">26,559</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japanese yen convertible
debentures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">309</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,487</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,634</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other long-term
debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,534</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,370</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">5,046</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,401</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">587</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,427</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">38,530</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">9,879</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">5,046</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">11,401</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">12,074</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">44,620</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 6pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">Note:&nbsp;</TD>
    <TD>All long-term debt as of December&nbsp;31, 2005, is fixed
rate debt. All long-term debt as of December&nbsp;31, 2004,  is fixed
rate debt except loans, principally from banks which include both fixed
and floating rate debt.</TD>
</TR>
</TABLE>




<DIV align="left">
<A name="177"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;12. Description of Securities Other than Equity Securities</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<P align="center" style="font-size: 10pt">59
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="178"></A>
</DIV>

<DIV align="center" style="font-size: 12pt; margin-top: 18pt"><B>PART II</B>
</DIV>

<DIV align="left">
<A name="179"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;13. Defaults, Dividend Arrearages and Delinquencies</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.
</DIV>
<DIV align="left">
<A name="180"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;14. Material Modifications to the Rights of Security Holders and Use of Proceeds</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of amendments to the Japanese Commercial Code which became effective on October&nbsp;1,
1982 (the &#147;1982 Amendments&#148;), the Deposit Agreement dated May&nbsp;1, 1969, which constituted the
American Depositary Receipts for 10,000,000 ADSs, each ADS representing five shares, was amended
and restated as of October&nbsp;1, 1982 (the &#147;amended Deposit Agreement&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the 1982 Amendments, the Company was required to adopt a &#147;unit&#148; of shares
(&#147;tan-i-kabu&#148;). At its annual meeting of shareholders held on March&nbsp;30,
1982, the Company adopted 1,000 shares as one unit, effective from October&nbsp;1, 1982.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recent amendments to the Japanese Commercial Code abolished the unit share system called
&#147;tan-i-kabu&#148; as of October&nbsp;1, 2001, and introduced a new unit share system called &#147;tangen-kabu&#148;
(together with the 1982 Amendments, the &#147;Amendments&#148;). Pursuant to these legal changes, the Company
was deemed to have amended its Articles of Incorporation in October&nbsp;2001, so that 1,000 shares
constituted one new unit. The Commercial Code permits the Board of Directors to reduce the number
of shares that will constitute a new unit or abolish the new unit share system entirety by amending
the Company&#146;s Articles of Incorporation without approval by shareholders. The Board of Directors of
the Company resolved to reduce the number of shares per unit to 100 shares and its Articles of
Incorporation has been amended accordingly. The number of shares constituting a new unit may not
exceed 1,000 shares or one-two hundredths (1/200) of the number of all issued shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the unit share system, shareholders have one voting right for each unit of shares they
hold. Shares not constituting a full unit will carry all shareholders&#146; rights except for those
relating to voting rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the Amendments, the Company is deemed to have amended its Articles of
Incorporation so that no share certificates will be issued with respect to any shares constituting
less than one unit. Consequently, no certificates for shares other than a full unit or an integral
multiple thereof
will be issued unless the Company determines that it is necessary to issue such certificates for
protection of the holders of shares constituting less than one
unit. As the transfer of shares normally requires delivery of the relevant share certificates, any
fraction of a unit for which no share certificates are issued
will not be transferable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A holder of shares constituting less than one unit may at any time require the Company
(through the participating institution in the case of a beneficial
shareholder under the central clearing system) to purchase such shares at the last selling price of
a share as reported by the Tokyo Stock Exchange, Inc. on the day when such request is made.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shareholders (including beneficial owners) who own less than one unit of shares may request
that Company sell them a number of shares which, when added to their less than one unit shares,
would equal one unit of shares; provided, however, that the Company is not obliged to do so if the
Company does not own its own shares in the number which it is requested to sell.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A holder of shares constituting less than one unit is entitled as a shareholder to the rights
(i)&nbsp;to receive distribution of dividends of profit or interest, (ii)&nbsp;to receive shares and/or cash
by way of retirement, consolidation, division, conversion, exchange or transfer of shares, company
split or merger, (iii)&nbsp;to be allotted rights to subscribe for new shares and other securities when
such rights are granted to shareholders; and (iv)&nbsp;to participate in any distribution of surplus
assets upon liquidation. Such holder cannot exercise any voting rights pertaining to those shares.
For calculation of the quorum for various voting purposes, the aggregate number of shares
constituting less than one unit will be excluded from the number of voting rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of the Amendments, the depositary under the Deposit Agreement may be unable to
deliver share certificates with respect to those shares
otherwise deliverable upon the surrender of ADRs which do not constitute one or more complete
units. In such case, the amended Deposit Agreement provides that the depositary will promptly
advise the holder of the amount of such shares, deliver to the holder a new ADR evidencing such
shares, and notify the holder of the additional amount of ADRs which the holder must surrender in order for the depositary to effect
delivery of share certificates for all of shares represented by the holder&#146;s ADSs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective from March&nbsp;16, 1998, the Company changed the ratio of ADSs to shares from five
shares to one share. In this regard, four additional ADSs for
each ADS held were distributed to holders of ADS. Existing ADRs remain valid and do not need to be
exchanged for new ones.
</DIV>

<P align="center" style="font-size: 10pt">60
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="181"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;15. Controls and Procedures</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Evaluation of disclosure controls and procedures</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, Canon, under the supervision and with the participation of its
management, including the chief executive officer and the chief financial officer, performed an
evaluation of the effectiveness of its disclosure controls and procedures. Canon&#146;s management
necessarily applied its judgment in assessing the costs and benefits of such controls and
procedures, which by their nature can provide only reasonable assurance regarding management&#146;s
control objectives. Based on this evaluation, Canon&#146;s chief executive officer and chief financial
officer concluded that Canon&#146;s disclosure controls and procedures are effective at the reasonable
assurance level for gathering, analyzing and disclosing the information Canon is required to
disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods
specified in the SEC&#146;s rules and forms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Changes in internal controls over financial reporting</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There has been no change in Canon&#146;s internal control over financial reporting that occurred
during the period covered by this Annual Report that has materially affected, or is reasonably
likely to materially affect, its internal control over financial reporting.
</DIV>
<DIV align="left">
<A name="182"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16A. Audit Committee Financial Expert</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s Board of Directors has determined that Kunihiro Nagata qualifies
as an &#147;audit committee financial expert&#148; as defined by the rules of the SEC. Mr.&nbsp;Nagata began his
career at Canon in 1970, and since that time has worked in the field of finance and accounting for
nearly thirty years. From 1996 to 1999, Mr.&nbsp;Nagata served as a senior manager of the Accounting
Planning &#038; Administration Division, the division responsible for Canon&#146;s consolidated reporting.
Mr.&nbsp;Nagata was elected as one of Canon&#146;s corporate auditors at an ordinary general meeting of
shareholders held in March&nbsp;2004. See Item&nbsp;6.A. for additional information regarding Mr.&nbsp;Nagata.
</DIV>
<DIV align="left">
<A name="183"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16B. Code of Ethics</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon maintains a &#147;Canon Group Code of Conduct&#148;, or Code of Conduct, applicable to all
executives and employees. The Code of Conduct sets forth provisions relating to honest and ethical
conduct (including the handling of conflicts of interest), compliance with applicable laws, rules
and regulations and accountability for adherence to the provisions of the Code of Conduct. In
addition, on March&nbsp;31, 2004, the Board of Directors adopted a &#147;Code of Ethics&#148; as a supplement to
the Code of Conduct. This Code of Ethics applies to Canon&#146;s President and Chief Executive Officer,
each member of the Board of Directors (which includes the Chief Financial Officer) and general
managers belonging to Canon&#146;s accounting headquarters. The Code of Ethics requires full, fair,
accurate, timely and understandable disclosure in reports and documents that Canon files with or
submits to the SEC and in Canon&#146;s other communications with the public, prompt internal reporting
of violations of the Code of Conduct or Code of Ethics, and accountability for adherence to their
provisions. Both the Code of Conduct and the Code of Ethics have been filed as exhibits to this
Annual Report.
</DIV>
<DIV align="left">
<A name="184"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16C. Principal Accountant Fees and Services</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Policy on Pre-Approval of Audit and Non-Audit Services of Independent Auditors</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s board of corporate auditors consisting of five members, including three outside
corporate auditors, is responsible for the oversight of the services of independent auditors. The
board of corporate auditors has established Pre-Approval Policies and Procedures for Audit and
Non-Audit Services, effective as of May&nbsp;28, 2003. These policies and procedures govern the board
of corporate auditors&#146; review and approval of the board of director&#146;s engagement of Canon&#146;s
external auditors to render audit or non-audit services. Non-audit services include audit-related
services, tax services and other services, as described in greater detail below under &#147;Fees and
Services&#148;. Canon and any affiliate controlled by Canon directly, indirectly or through one or more
intermediaries must follow these policies and procedures before any engagement of Canon&#146;s
independent accountants for U.S. securities law reporting purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The policies and procedures stipulate three means by which audit and non-audit services may be
pre-approved, depending on the content of and the fee for the services.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All services provided to Canon necessary to perform an annual or
semi-annual audit or review to comply with the standards of the
Public Company Accounting Oversight Board (United States), in any
jurisdiction, including tax services and accounting consultation
necessary to comply with the standards of the Public Company
Accounting Oversight Board (United States) in those jurisdictions,
and any engagement of an Independent Registered Public Accounting
Firm for any audit or non-audit service involving estimated fees
exceeding Yen 10,000,000 per single engagement must be approved by
the full board of corporate auditors.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certain other services may be pre-approved under detailed
categories of audit and non-audit services established annually by
the board of corporate auditors, as long as those services do not
exceed specified maximum yen limits for aggregate fees relating to
each of those categories. Any engagement of an Independent
Registered Public Accounting Firm by these means must be reported
to the board of corporate auditors at its next regularly scheduled
meeting.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For services that are not covered by the above two means of
pre-approval, the board of corporate auditors has delegated
pre-approval authority to the Chairman of the board of corporate
auditors. Any engagement of an Independent Registered Public
Accounting Firm by the Chairman is required to be reported to the
board of corporate auditors at its next regularly scheduled
meeting.

</TD>
</TR>
</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">61
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


</TABLE>
<P align="left" style="font-size: 10pt">Additional services may be pre-approved by the board of corporate auditors on an individual basis.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No services were provided for which pre-approval was waived pursuant to paragraph (c)(7)(i)(C)
of Rule&nbsp;2-01 of Regulation&nbsp;S-X.


<P align="left" style="font-size: 10pt"><I>Fees and Services.</I>

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table discloses the aggregate fees accrued or paid to Canon&#146;s principal
accountant for each of the last two fiscal years and briefly describes the services performed:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="96%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Year ended<BR>December 31, 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Year ended<BR>December 31, 2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>(Millions of yen)</B></TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Audit fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">968</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">690</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Audit-related fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">439</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">All other fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">886</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
<TD align="left"><I>Audit fees </I>include fees billed for professional services rendered for audits of Canon&#146;s annual
consolidated financial statements, review of consolidated quarterly financial statements,
statutory audits of the Company and its subsidiaries.</TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
<TD align="left"><I>Audit-related fees </I>include fees billed for assurance and related services such as due diligence,
accounting consultations and audits in connection with
mergers and acquisitions, employee benefit plan audits, internal control reviews, and
consultations concerning financial accounting and reporting standards.</TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
<TD align="left"><I>Tax fees </I>include fees billed for services related to tax compliance, including the preparation
of tax returns and claims for refund, tax planning and tax advice, including assistance with tax
audits and appeals, advice related to mergers and acquisitions, tax services for employee
benefit plans and assistance with respect to requests for rulings from tax authorities.</TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
<TD align="left"><I>All other fees </I>include fees billed primarily for services rendered with respect to learning
products and services.</TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
<TD align="left">Ernst &#038; Young ShinNihon served as Canon&#146;s principal accountant for fiscal 2005 and 2004.</TD>
</TR>


</TABLE>

<DIV align="left">
<A name="185"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16D. Exemptions from the Listing Standards for Audit Committees</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon is relying on the general exemption contained in Rule&nbsp;10A-3(c)(3) under the Exchange
Act. Because of such reliance, Canon does not have an audit committee which can act independently
and satisfy the other requirements of Rule&nbsp;10A-3 under the Exchange Act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to Rule&nbsp;10A-3 under the Exchange Act and NYSE listing standards, Canon&#146;s board of
corporate auditors has been identified to act in place of an audit committee. The board of
corporate auditors meets the following requirements of the general exemption contained in Rule
10A-3(c)(3):
</DIV>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&#149;</TD>
<TD width="1%">&nbsp;</TD>
<TD>the board of corporate auditors is established pursuant to applicable Japanese law and Canon&#146;s
Articles of Incorporations;</TD>
</TR>


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&#149;</TD>
<TD width="1%">&nbsp;</TD>
<TD>under Japanese legal requirements, the board of corporate auditors is separate from the board of
directors;</TD>
</TR>


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&#149;</TD>
<TD width="1%">&nbsp;</TD>
<TD>the board of corporate auditors is not elected by the management of Canon and no executive
officer of Canon is a member of the board of corporate auditors;</TD>
    <TD width="1%">&nbsp;</TD>

</TR>


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&#149;</TD>
<TD width="1%">&nbsp;</TD>
<TD>all of the members of the board of corporate auditors meet specific independence requirements
from Canon and the Canon Group, the management and the auditing firm, as set forth by Japanese
legal provisions;</TD>
</TR>


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&#149;</TD>
<TD width="1%">&nbsp;</TD>
<TD>the board of corporate auditors, in accordance with and to the extent permitted by Japanese law,
is responsible for the appointment, retention and oversight of the work of Canon&#146;s external
auditors engaged for the purpose of issuing audit reports on Canon&#146;s annual financial statements;</TD>
</TR>


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&#149;</TD>
<TD width="1%">&nbsp;</TD>
<TD>the board of corporate auditors adopted a complaints procedure (which became effective prior to
July&nbsp;31, 2005) in accordance with Rule&nbsp;10A-3(b)(3) of the Exchange Act;</TD>
</TR>


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&#149;</TD>
<TD width="1%">&nbsp;</TD>
<TD>the board of corporate auditors is authorized to engage independent counsel and other advisers,
as it deems appropriate; and</TD>
    <TD width="1%">&nbsp;</TD>
    <TD></TD>
</TR>


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&#149;</TD>
<TD width="1%">&nbsp;</TD>
<TD>the board of corporate auditors is provided for appropriate
funding for payment of (i) compensation to Canon&#146;s external auditors
engaged for the purpose of issuing audit reports on Canon&#146;s
annual financial statements, (ii) compensation to independent counsel
and other advisers engaged by the board of corporate auditors, and
(iii) ordinary administrative expenses of the board of corporate
auditors in carrying out its duties.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD></TD>
</TR>



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon&#146;s reliance on Rule&nbsp;10A-3(c)(3) does not, in its opinion, materially adversely affect the
ability of its board of corporate auditors to act independently
and to satisfy the other requirements of Rule&nbsp;10A-3.
</DIV>

<DIV>
<P align="center" style="font-size: 10pt">62
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="186"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth, for each of the months indicated, the total number of shares purchased by us or on our behalf or any affiliated purchaser,
the average price paid per share, the number of shares purchased as
part of a publicly announced repurchase plan or program, the maximum
number of shares or approximate Japanese Yen value that may yet be purchased under the plans or programs.

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(a) Total Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(b) Average Price</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(c) Total Numbers of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(d) Maximum Numbers</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2"><B>Shares Purchased</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2"><B>Paid per Share</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Shares Purchased as</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>of Shares that May</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Part of Publicly</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Yet Be Purchased</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Announced Plans or</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Under the Plans or</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>(Shares)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>(Yen)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Programs</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Programs</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">January 1 - January 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,938</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">February 1 - February 28</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,455</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">March 1 - March 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,558</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">April 1 - April 30</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,528</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,736</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">May 1 - May 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,658</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">June 1 - June 30</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,867</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,909</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">July 1 - July 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,986</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,959</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">August 1 - August 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,610</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">September 1 - September 30</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,776</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">October 1 - October 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">November 1 - November 30</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December 1 - December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,963</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canon currently does not have any publicly announced repurchase plans or programs. All of the
purchase shown above represent with the purchase of fractional shares from fractional share owners,
in accordance with the Japanese Commercial Code.
</DIV>

<P align="center" style="font-size: 10pt">63
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="187"></A>
</DIV>

<DIV align="center" style="font-size: 12pt; margin-top: 18pt"><B>PART III</B>
</DIV>

<DIV align="left">
<A name="188"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;17. Financial Statements</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left">Consolidated financial statement of Canon Inc. and Subsidiaries:</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Page number</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Report of Ernst &#038; Young ShinNihon, Independent Registered Public Accounting Firm</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Report of KPMG AZSA &#038; Co., Independent Registered Public Accounting Firm</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Consolidated Balance Sheets as of December&nbsp;31, 2005 and 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Consolidated Statements of Income for the years ended December
31, 2005, 2004 and 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Consolidated Statements of Stockholders&#146; Equity for the years
ended December&nbsp;31, 2005, 2004 and 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Consolidated Statements of Cash Flows for the years ended
December&nbsp;31, 2005, 2004 and 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Notes to Consolidated Financial Statements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Schedule:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Schedule&nbsp;II Valuation and Qualifying Accounts for the years ended
December&nbsp;31, 2005, 2004 and 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">114</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All other schedules are omitted as permitted by the rules and regulations of the Securities and Exchange Commission as not applicable.
</DIV>


<P align="center" style="font-size: 10pt">64
</DIV>


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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="189"></A>
</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Report of Independent Registered Public Accounting Firm
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Board of Directors and Stockholders of<BR>
Canon Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have audited the accompanying consolidated balance sheets of Canon Inc. and subsidiaries (the
&#147;Company&#148;) as of December&nbsp;31, 2005 and 2004, and the related consolidated statements of income,
stockholders&#146; equity, and cash flows for each of the two years in the period ended December&nbsp;31,
2005, all expressed in Japanese yen. Our audits also included the financial statement schedule
listed in the Index at Item&nbsp;17 for each of the two years in the period ended December&nbsp;31, 2005.
These financial statements and schedule are the responsibility of the Company&#146;s management. Our
responsibility is to express an opinion on these financial statements and schedule based on our
audits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. We
were not engaged to perform an audit of the Company&#146;s internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company&#146;s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company&#146;s consolidated financial statements do not disclose segment information required by
Statement of Financial Accounting Standards No.&nbsp;131, &#147;Disclosures about Segments of an Enterprise
and Related Information.&#148; In our opinion, disclosure of segment information is required by U.S.
generally accepted accounting principles.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In our opinion, except for the omission of segment information as discussed in the preceding
paragraph, the 2005 and 2004 financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Canon Inc. and subsidiaries at December&nbsp;31, 2005
and 2004, and the consolidated results of their operations and their cash flows for each of the two
years in the period ended December&nbsp;31, 2005 in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule for each of the two
years in the period ended December&nbsp;31, 2005, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the information set forth
therein.
</DIV>


<DIV align="right" style="font-size: 10pt; margin-top: 12pt">/s/ Ernst &#038; Young ShinNihon
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Tokyo, Japan<BR>
January&nbsp;26, 2006
</DIV>



<P align="center" style="font-size: 10pt">65
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U>Report of Independent Registered Public Accounting Firm</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Board of Directors and Stockholders<BR>
Canon Inc.:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have audited the accompanying consolidated statements of income, stockholders&#146; equity and cash
flows (expressed in yen) of Canon Inc. and subsidiaries for the year ended December&nbsp;31, 2003. In
connection with our audit of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the Company&#146;s management.
Our responsibility is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company&#146;s consolidated financial statements do not disclose certain information required by
Statement of Financial Accounting Standards No.&nbsp;131, &#147;Disclosures about Segments of an Enterprise
and Related Information&#148;. In our opinion, disclosure of this information is required by U.S.
generally accepted accounting principles.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In our opinion, except for the omission of the segment information as discussed in the preceding
paragraph, the consolidated financial statements referred to above present fairly, in all material
respects, the results of operations and the cash flows of Canon Inc. and subsidiaries for the year
ended December&nbsp;31, 2003, in conformity with U.S. generally accepted accounting principles.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Also in our opinion, the 2003 related financial statement schedule, when considered in relation to
the 2003 basic consolidated financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">/s/ KPMG AZSA &#038; Co.<BR>
Tokyo, Japan<BR>
January&nbsp;28, 2004
</DIV>


<P align="center" style="font-size: 10pt">66


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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">





<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>

<DIV align="left">
<A name="190"></A>
</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Consolidated Balance Sheets
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>1,004,953</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">887,774</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Marketable securities <I>(Note 3)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>172</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,554</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trade receivables, net <I>(Note 4)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>689,427</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">602,790</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories <I>(Note 5)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>510,195</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">489,128</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses and other current assets
<I>(Notes 7 and 13)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>253,822</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">250,906</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,458,569</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,232,152</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Noncurrent receivables <I>(Note 19)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>14,122</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,567</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investments <I>(Notes 3 and 10)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>104,486</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97,461</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment, net <I>(Notes 6, 7 and 10)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,148,821</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">961,714</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets <I>(Notes 7, 8, 9, 12 and 13)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>317,555</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">281,127</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>4,043,553</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,587,021</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Liabilities and stockholders&#146; equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Short-term loans and current portion of long-term
debt <I>(Note 10)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>5,059</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">9,879</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trade payables <I>(Note 11)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>505,126</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">465,396</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes <I>(Note 13)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>110,844</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">105,565</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued expenses <I>(Note 19)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>248,205</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">205,296</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other current liabilities <I>(Note 13)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>209,394</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">197,029</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,078,628</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">983,165</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term debt, excluding current installments <I>(Note
10)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>27,082</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,651</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued pension and severance cost <I>(Note 12)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>80,430</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">132,522</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other noncurrent liabilities <I>(Note 13)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>52,395</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,993</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,238,535</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,190,331</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>200,336</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">186,794</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commitments and contingent liabilities <I>(Note 19)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stockholders&#146; equity:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-1px">Authorized
2,000,000,000 shares;<BR>
issued 888,742,779 shares in 2005 and
887,977,251 shares in 2004 <I>(Note 14)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>174,438</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173,864</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Additional paid-in capital <I>(Note 14)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>403,246</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">401,773</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Legal reserve <I>(Note 15)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>42,331</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,200</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Retained earnings <I>(Note 15)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,018,289</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,699,634</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated other comprehensive income (loss)
<I>(Note 16)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(28,212</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(101,312</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Treasury stock, at cost 1,145,682 shares in 2005
and 1,120,867 shares in 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(5,410</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,263</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,604,682</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,209,896</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities and stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>4,043,553</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,587,021</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>See accompanying notes to consolidated financial statements.</I>
</DIV>


<P align="center" style="font-size: 10pt">67
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>

<DIV align="left">
<A name="191"></A>
</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Consolidated Statements of Income
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>3,754,191</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,467,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,198,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of sales <I>(Notes 9, 12 and 19)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,935,148</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,754,510</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,589,172</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,819,043</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,713,343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,608,900</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Selling, general and administrative
expenses <I>(Notes 1, 9, 12 and 19)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>949,524</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">894,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">895,336</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and development expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>286,476</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">275,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">259,140</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Operating profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>583,043</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">543,793</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">454,424</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (deductions):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest and dividend income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>14,252</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,118</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,284</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1,741</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,756</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,627</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other, net <I>(Notes 1, 3 and 18)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>16,450</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,961</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,911</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>28,961</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,323</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,254</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Income before income taxes and
minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>612,004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">552,116</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">448,170</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes <I>(Note 13)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>212,785</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">194,014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">162,653</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Income before minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>399,219</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">358,102</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">285,517</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>15,123</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,758</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,787</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>384,096</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">343,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">275,730</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="center"><DIV style="font-size: 8pt"><B>(Yen)</B></DIV></TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per share <I>(Note 17)</I>:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>432.94</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">387.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">313.81</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>432.55</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">386.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">310.75</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash dividends per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>100.00</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50.00</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>See accompanying notes to consolidated financial statements.</I>
</DIV>


<P align="center" style="font-size: 10pt">68
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>

<DIV align="left">
<A name="192"></A>
</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Consolidated Statements of Stockholders&#146; Equity
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Common stock:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>173,864</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">168,892</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">167,242</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Conversion of convertible debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>574</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,972</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,650</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>174,438</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173,864</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">168,892</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Additional paid-in capital:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>401,773</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">396,939</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">394,088</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Conversion of convertible debt and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>574</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,966</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,649</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock exchanged under exchange offering</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">114</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Capital transactions by consolidated
subsidiaries and affiliated companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>899</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(246</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,202</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>403,246</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">401,773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">396,939</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Legal reserve:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>41,200</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,998</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,803</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Transfers from retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,131</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,202</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,195</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>42,331</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,998</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Retained earnings:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,699,634</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,410,442</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,164,445</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>384,096</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">343,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">275,730</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash dividends</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(64,310</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(52,950</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(28,538</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Transfers to legal reserve</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1,131</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,202</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,195</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,018,289</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,699,634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,410,442</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated other comprehensive income
(loss):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(101,312</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(143,275</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(166,467</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other comprehensive income (loss)&nbsp;for
the year, net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>73,100</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,963</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,192</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(28,212</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(101,312</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(143,275</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Treasury stock:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(5,263</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,451</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,161</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Repurchase, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(147</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(503</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,290</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock exchanged under exchange offering</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(5,410</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,263</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,451</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>2,604,682</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">2,209,896</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,865,545</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Disclosure of comprehensive income:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>384,096</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">343,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">275,730</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other comprehensive income (loss)&nbsp;for
the year, net of tax <I>(Note 16)</I>:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Foreign currency translation
adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>53,979</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,277</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net unrealized gains and losses on
securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1,397</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">686</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,952</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net gains and losses on derivative
instruments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(481</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(396</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Minimum pension liability adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>20,999</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,623</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,480</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>73,100</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,963</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,192</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total comprehensive income for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>457,196</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">385,307</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">298,922</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>See accompanying notes to consolidated financial statements.</I>
</DIV>


<P align="center" style="font-size: 10pt">69
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>

<DIV align="left">
<A name="193"></A>
</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Consolidated Statements of Cash Flows
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>384,096</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">343,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">275,730</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments to reconcile net income to net
cash provided by operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>225,941</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">183,604</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Loss on disposal of property, plant and
equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>13,784</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,597</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,639</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(766</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,060</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,035</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Increase in trade receivables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(48,391</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(53,595</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(36,638</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(Increase) decrease in inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>27,558</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(40,050</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,823</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Increase in trade payables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>16,018</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,873</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,129</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Increase in income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,998</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,689</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,441</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Increase in accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>31,241</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,131</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Increase (decrease)&nbsp;in accrued pension
and severance cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(16,221</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(16,924</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,445</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(29,580</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,647</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(21,974</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>605,678</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">561,529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">465,649</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from investing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchases of fixed assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(395,055</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(256,714</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(199,720</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from sale of fixed assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>14,827</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,354</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchases of available-for-sale securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(5,680</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(388</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(249</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchases of held-to-maturity securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(21,544</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from sale of available-for-sale
securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12,337</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,544</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisitions of subsidiaries, net of cash
acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(17,657</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from sale of subsidiary common
stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,731</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchases of other investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(19,531</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,628</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24,341</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>9,618</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,464</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(401,141</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(252,967</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(199,948</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from issuance of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,716</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,132</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Repayments of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(15,187</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(43,175</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(25,301</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Decrease in short-term loans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(12,011</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,046</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(49,224</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dividends paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(64,310</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(52,950</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(28,538</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchases of treasury stock, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(147</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(494</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,071</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(4,000</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,718</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,037</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(93,939</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(102,268</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(102,039</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes on cash and
cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>6,581</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,818</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,365</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>117,179</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">197,476</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">169,027</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at beginning of
year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>887,774</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">690,298</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">521,271</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>1,004,953</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">887,774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">690,298</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Supplemental disclosure for cash flow
information <I>(Note 21)</I>:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash paid during the year for:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>1,919</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">2,981</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,570</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>211,540</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">164,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">162,247</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>See accompanying notes to consolidated financial statements.</I>
</DIV>


<P align="center" style="font-size: 10pt">70
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>

<DIV align="left">
<A name="194"></A>
</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Basis of Presentation and Significant Accounting Policies</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Description of Business</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Canon Inc. (the &#147;Company&#148;) and subsidiaries (collectively &#147;Canon&#148;) is one of the world&#146;s
leading manufacturers in such fields as office imaging products, computer peripherals,
business information products, cameras, and optical related products. Office imaging products
consist mainly of copying machines and digital multifunction devices. Computer peripherals
consist mainly of laser beam and inkjet printers. Business information products consist
mainly of computer information systems, micrographics and calculators. Cameras consist mainly
of single lens reflex (&#147;SLR&#148;) cameras, compact cameras, digital cameras and video camcorders.
Optical related products include steppers and aligners used in semiconductor chip production,
projection aligners used in the production of liquid crystal displays (&#147;LCDs&#148;), broadcasting
lenses and medical equipment. Canon&#146;s consolidated net sales for the years ended December&nbsp;31,
2005, 2004 and 2003 were distributed as follows: office imaging products 31%, 33% and 34%,
computer peripherals 33%, 33% and 34%, business information products 3%, 3% and 4%, cameras
23%, 22% and 20%, and optical and other products 10%, 9% and 8%, respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Sales are made principally under the Canon brand name, almost entirely through sales
subsidiaries. These subsidiaries are responsible for marketing and distribution, and
primarily sell to retail dealers in their geographical area. Approximately 74%, 73% and 73%
of consolidated net sales for the years ended December&nbsp;31, 2005, 2004 and 2003 were generated
outside Japan, with 30%, 30% and 33% in the Americas, 32%, 31% and 30% in Europe, and 12%, 12%
and 10% in other areas, respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Canon sells laser beam printers on an OEM basis to Hewlett-Packard Company; such sales
constituted approximately 21%, 21% and 20% of consolidated net sales for the years ended
December&nbsp;31, 2005, 2004 and 2003, respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Canon&#146;s manufacturing operations are conducted primarily at 23 plants in Japan and 17 overseas
plants which are located in countries or regions such as the United States, Germany, France, Taiwan, China, Malaysia,
Thailand and Vietnam.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">71
</DIV>

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<P><HR noshade><P>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>





<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Basis of Presentation and Significant Accounting Policies (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Basis of Presentation</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company and its domestic subsidiaries maintain their books of account in conformity with
financial accounting standards of Japan. Foreign subsidiaries maintain their books of account
in conformity with financial accounting standards of the countries of their domicile.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certain adjustments and reclassifications have been incorporated in the accompanying
consolidated financial statements to conform with U.S. generally accepted accounting
principles. These adjustments were not recorded in the statutory books of account.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Principles of Consolidation</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The consolidated financial statements include the accounts of the Company, its majority owned
subsidiaries and those variable interest entities where the Company is the primary beneficiary
under FASB Interpretation No.&nbsp;46 (revised December&nbsp;2003) (&#147;FIN 46R&#148;), &#147;Consolidation of
Variable Interest Entities.&#148; All significant intercompany balances and transactions have been
eliminated.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Use of Estimates</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The preparation of the consolidated financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the period. Significant estimates and assumptions are
reflected in valuation and disclosure of revenue recognition, allowance for doubtful
receivables, valuation of inventories, environmental liabilities, valuation of deferred tax
assets and employee retirement and severance benefit plans. Actual results could differ
materially from those estimates.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(e)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Cash Equivalents</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All highly liquid investments acquired with an original maturity of three months or less are
considered to be cash equivalents.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">72
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Basis of Presentation and Significant Accounting Policies (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(f)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Translation of Foreign Currencies</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Assets and liabilities of the Company&#146;s subsidiaries located outside Japan with functional
currencies other than Japanese yen are translated into Japanese yen at the rates of exchange
in effect at the balance sheet date. Income and expense items are translated at the average
exchange rates prevailing during the year. Gains and losses resulting from translation of
financial statements are excluded from earnings and are reported in other comprehensive income
(loss).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Gains and losses resulting from foreign currency transactions, including foreign exchange
contracts, and translation of assets and liabilities denominated in foreign currencies are
included in other income (deductions). Foreign currency exchange losses, net were Yen 3,710
million, Yen 17,800&nbsp;million and Yen 20,311&nbsp;million for the years ended December&nbsp;31, 2005, 2004
and 2003, respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(g)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Marketable Securities and Investments</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Canon classifies investments in debt and marketable equity securities as available-for-sale,
or held-to-maturity securities. Canon does not hold any trading securities which are bought
and held primarily for the purpose of sale in the near term. Available-for-sale securities
are recorded at fair value. Unrealized holding gains and losses, net of the related tax
effect, are reported as a separate component of other comprehensive income (loss)&nbsp;until
realized. Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Available-for-sale and held-to-maturity securities are regularly reviewed for
other-than-temporary declines in carrying value based on criteria that include the length of
time and the extent to which the market value has been less than cost, the financial condition
and near-term prospects of the issuer and Canon&#146;s intent and ability to retain the investment
for a period of time sufficient to allow for any anticipated recovery in market value. When
such a decline exists, Canon recognizes an impairment loss to the extent by which the cost
basis of the investment exceeds the fair value of the investment. Fair value is determined
based on quoted market prices, projected discounted cash flows or other valuation techniques
as appropriate.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Realized gains and losses are determined on the average cost method and reflected in earnings.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Other securities are stated at cost and reviewed periodically for impairment.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">73
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Basis of Presentation and Significant Accounting Policies (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(h)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Allowance for Doubtful Receivables</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Allowance for doubtful trade and finance receivables is maintained for all customers based on
a combination of factors, including aging analysis, macroeconomic conditions, significant
one-time events, and historical experience. An additional reserve for individual accounts is
recorded when Canon becomes aware of a customer&#146;s inability to meet its financial obligations,
such as in the case of bankruptcy filings. If circumstances related to customers change,
estimates of the recoverability of receivables would be further adjusted. When all collection
options are exhausted including legal recourse, the accounts or portions thereof are deemed to
be uncollectible and charged against the allowance.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Inventories</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Inventories are stated at the lower of cost or market value. Cost is determined principally
by the average method for domestic inventories and the first-in, first-out method for overseas
inventories.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(j)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Investments in Affiliated Companies</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Investments in affiliated companies over which Canon has the ability to exercise significant
influence, but does not hold a controlling financial interest, are accounted for by the equity
method.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(k)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Impairment of Long-Lived Assets</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Long-lived assets, such as property, plant and equipment, and acquired intangibles subject to
amortization, are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of the asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the carrying amount
of the asset exceeds its estimated future cash flows, an impairment charge is recognized in
the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Assets to be disposed of by sale are reported at the lower of the carrying amount or fair
value less costs to sell, and are no longer depreciated.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">74
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Basis of Presentation and Significant Accounting Policies (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(l)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Property, Plant and Equipment</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Property, plant and equipment are stated at cost. Depreciation is calculated principally by
the declining-balance method, except for certain assets which are depreciated by the
straight-line method over the estimated useful lives of the assets. The depreciation period
ranges from 3&nbsp;years to 60&nbsp;years for buildings and 2&nbsp;years to 20&nbsp;years for machinery and
equipment.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Assets leased to others under operating leases are stated at cost and depreciated to the
estimated residual value of the assets by the straight-line method over the period ranging
from 2&nbsp;years to 5&nbsp;years.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(m)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Goodwill and Other Intangible Assets</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Goodwill and intangible assets with indefinite useful lives are not amortized, but are instead
tested for impairment annually in the fourth quarter of each year, or more frequently if
indicators of potential impairment exist. Intangible assets with finite useful lives,
consisting primarily of software and license fees, are amortized using the straight-line
method over the estimated useful lives, which range from 3&nbsp;years to 5&nbsp;years for software and 5
years to 10&nbsp;years for license fees. Certain costs incurred in connection with developing or
obtaining internal use software are capitalized. These costs consist of payments made to
third parties and the salaries of employees working on such software development. Costs
incurred in connection with developing internal use software are capitalized at the
application development stage. In addition, Canon develops or obtains certain software to be
sold where related costs are capitalized after establishment of technological feasibility.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(n)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Environmental Liabilities</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Liabilities for environmental remediation and other environmental costs are accrued when
environmental assessments or remedial efforts are probable and the costs can be reasonably
estimated. Such liabilities are adjusted as further information develops or circumstances
change. Costs of future obligations are not discounted to their present values.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(o)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Income Taxes</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Deferred tax assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the enactment date.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">75
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Basis of Presentation and Significant Accounting Policies (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(o)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Income Taxes (continued)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Canon records a valuation allowance to reduce the deferred tax assets to the amount that is
more likely than not realizable.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(p)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Issuance of Stock by Subsidiaries and Equity Investees</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The change in the Company&#146;s proportionate share of a subsidiary&#146;s or equity investee&#146;s equity
resulting from the issuance of stock by the subsidiary or equity investee is accounted for as
an equity transaction.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(q)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Net Income per Share</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Basic net income per share is computed by dividing net income by the weighted-average number
of common shares outstanding during each year. Diluted net income per share includes the
effect from potential issuance of common stock based on the assumption that all convertible
debentures were converted into common stock.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(r)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Revenue Recognition</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Canon generates revenue principally through the sale of consumer products, equipment,
supplies, and related services under separate contractual arrangements. Canon recognizes
revenue when persuasive evidence of an arrangement exists, delivery has occurred and title and
risk of loss have been transferred to the customer, the sales price is fixed or determinable,
and collectibility is probable.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For arrangements with multiple elements, which may include any combination of equipment,
installation and maintenance, Canon allocates revenue to each element based on its relative
fair value if such element meets the criteria for treatment as a separate unit of accounting
as prescribed in the Emerging Issues Task Force Issue No.&nbsp;00-21 (&#147;EITF 00-21&#148;), &#147;Revenue
Arrangements with Multiple Deliverables.&#148; Otherwise, revenue is deferred until the
undelivered elements are fulfilled as a single unit of accounting.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Revenue from sales of consumer products including office imaging products, computer
peripherals, business information products and cameras is recognized upon shipment or
delivery, depending upon when title and risk of loss transfer to the customer.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">76
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Basis of Presentation and Significant Accounting Policies (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(r)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Revenue Recognition (continued)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Revenue from sales of optical equipment such as steppers and aligners sold with customer
acceptance provisions related to their functionality is recognized when the equipment is
installed at the customer site and the specific criteria of the equipment functionality are
successfully tested and demonstrated by Canon. Service revenue is derived primarily from
maintenance contracts on equipment sold to customers and is recognized over the term of the
contract.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Most office imaging products are sold with service maintenance contracts for which the
customer typically pays a base service fee plus a variable amount based on usage. Revenue
from these service maintenance contracts is recognized as services are provided.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Revenue from the sale of equipment under sales-type leases is recognized at the inception of
the lease. Income on sales-type leases and direct-financing leases is recognized over the
life of each respective lease using the interest method. Leases not qualifying as sales-type
leases or direct-financing leases are accounted for as operating leases and related revenue is
recognized over the lease term.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Canon records estimated reductions to sales at the time of sale for sales incentive programs
including product discounts, customer promotions and volume-based rebates. Estimated
reductions in sales are based upon historical trends and other known factors at the time of
sale. In addition, Canon provides price protection to certain resellers of its products, and
records reductions to sales for the estimated impact of price protection obligations when
announced.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Estimated product warranty costs are recorded at the time revenue is recognized and are
included in selling, general and administrative expenses. Estimates for accrued product
warranty costs are based on historical experience, and are affected by ongoing product failure
rates, specific product class failures outside of the baseline experience, material usage and
service delivery costs incurred in correcting a product failure.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(s)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Research and Development Costs</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Research and development costs are expensed as incurred.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(t)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Advertising Costs</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Advertising costs are expensed as incurred. Advertising expenses were Yen&nbsp;106,250&nbsp;million,
Yen&nbsp;111,770&nbsp;million and Yen&nbsp;100,278&nbsp;million for the years ended December&nbsp;31, 2005, 2004 and
2003, respectively.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">77
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Basis of Presentation and Significant Accounting Policies (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(u)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Shipping and Handling Costs</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Shipping and handling costs totaled Yen 50,052&nbsp;million, Yen 46,953&nbsp;million and Yen 40,660
million for the years ended December&nbsp;31, 2005, 2004 and 2003, respectively, and are included
in selling, general and administrative expenses in the consolidated statements of income.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(v)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Derivative Financial Instruments</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All derivatives are recognized at fair value and are included in prepaid expenses and other
current assets, or other current liabilities on the consolidated balance sheets. On the date
the derivative contract is entered into, Canon designates the derivative as either a hedge of
the fair value of a recognized asset or liability or of an unrecognized firm commitment (&#147;fair
value&#148; hedge), or a hedge of a forecasted transaction or the variability of cash flows to be
received or paid related to a recognized asset or liability (&#147;cash flow&#148; hedge). Canon
formally documents all relationships between hedging instruments and hedged items, as well as
its risk-management objective and strategy for undertaking various hedge transactions. Canon
also formally assesses, both at the hedge&#146;s inception and on an ongoing basis, whether the
derivatives that are used in hedging transactions are highly effective in offsetting changes
in fair values or cash flows of hedged items. When it is determined that a derivative is not
highly effective as a hedge or that it has ceased to be a highly effective hedge, Canon
discontinues hedge accounting prospectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Changes in the fair value of a derivative that is designated and qualifies as a fair-value
hedge, along with the loss or gain on the hedged asset or liability or unrecognized firm
commitment of the hedged item that is attributable to the hedged risk, are recorded in
earnings. Changes in the fair value of a derivative that is designated and qualifies as a
cash-flow hedge are recorded in other comprehensive income (loss), until earnings are affected
by the variability in cash flows of the hedged item. Gains and losses from hedging
ineffectiveness are included in other income (deductions). Gains and losses excluded from the
assessment of hedge effectiveness (time value component) are included in other income
(deductions).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Canon also uses certain derivative financial instruments which are not designated as hedges.
Canon records these derivative financial instruments on the consolidated balance sheets at
fair value. The changes in fair values are immediately recorded in earnings.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(w)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Guarantees</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Canon recognizes, at the inception of a guarantee, a liability for the fair value of the
obligation it has undertaken in issuing guarantees.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">78
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Basis of Presentation and Significant Accounting Policies (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(x)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>New Accounting Standards</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In November&nbsp;2004, the FASB issued SFAS No.&nbsp;151, &#147;Inventory Costs&#151;an amendment of ARB No.&nbsp;43,
Chapter&nbsp;4&#148; (&#147;SFAS 151&#148;). SFAS 151 amends the guidance in ARB No.&nbsp;43, Chapter&nbsp;4,
&#147;Inventory Pricing,&#148; to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). Among other provisions, the
new rule requires that items such as idle facility expense, excessive spoilage, double
freight, and rehandling costs be recognized as current-period charges regardless of whether
they meet the criterion of &#147;so abnormal&#148; as stated in ARB No.&nbsp;43. Additionally, SFAS 151
requires that the allocation of fixed production overheads to the costs of conversion be based
on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years
beginning after June&nbsp;15, 2005 and is required to be adopted by Canon in the first quarter
beginning January&nbsp;1, 2006. Canon is currently evaluating the effect that the adoption of SFAS
151 will have on its consolidated results of operations and financial condition but does not
expect SFAS 151 to have a material impact.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In December&nbsp;2004, the FASB issued SFAS No.&nbsp;153, &#147;Exchanges of Nonmonetary Assets&#151;an
amendment of APB Opinion No.&nbsp;29&#148; (&#147;SFAS 153&#148;). SFAS 153 eliminates the exception from fair
value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of
APB Opinion No.&nbsp;29, &#147;Accounting for Nonmonetary Transactions,&#148; and replaces it with an
exception for exchanges that do not have commercial substance. SFAS 153 specifies that a
nonmonetary exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. SFAS 153 is effective for the
fiscal periods beginning after June&nbsp;15, 2005 and was adopted by Canon in the third quarter
ended September&nbsp;30, 2005. The adoption of SFAS 153 did not have a material impact on the
consolidated results of operations and financial condition of Canon.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In May&nbsp;2005, the FASB issued SFAS No.&nbsp;154, &#147;Accounting Changes and Error Corrections&#151;a
replacement of APB Opinion No.&nbsp;20 and FASB Statement No.&nbsp;3&#148; (&#147;SFAS 154&#148;). SFAS 154 replaces
APB Opinion No.&nbsp;20, &#147;Accounting Changes&#148; and SFAS No.&nbsp;3 &#147;Reporting Accounting Changes in
Interim Financial Statements,&#148; and provides guidance on the accounting for and reporting of
accounting changes and error corrections. SFAS 154 establishes retrospective application, or
the latest practicable date, as the required method for reporting a change in accounting
principle and the reporting of a correction of an error. SFAS 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning after December&nbsp;15, 2005 and
is required to be adopted by Canon in the first quarter beginning January&nbsp;1, 2006. Canon is
currently evaluating the effect that the adoption of SFAS 154 will have on its consolidated
results of operations and financial condition but does not expect SFAS 154 to have a material
impact.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">79
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Basis of Presentation and Significant Accounting Policies (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(x)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>New Accounting Standards (continued)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In June&nbsp;2005, the FASB issued FSP FAS 143-1, &#147;Accounting for Electronic Equipment Waste
Obligations&#148; (&#147;FSP 143-1&#148;). FSP 143-1 provides guidance on the accounting for certain
obligations associated with the Waste Electrical and Electronic Equipment Directive (the
&#147;Directive&#148;), adopted by the European Union (&#147;EU&#148;). Under the Directive, the waste management
obligation for historical equipment (products put on the market on or prior to August&nbsp;13,
2005) remains with the commercial user until the customer replaces the equipment. FSP 143-1
is required to be applied to the later of the first reporting period ending after June&nbsp;8, 2005
or the date of the Directive&#146;s adoption into law by the applicable EU member countries. Canon
adopted FSP 143-1 in the third quarter ended September&nbsp;30, 2005 and has determined that its
effect did not have a material impact on its consolidated results of operations and financial
condition in 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In November&nbsp;2005, the FASB issued FSP FAS 115-1 and FAS 124-1, &#147;The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments&#148; (&#147;FSP 115-1&#148;).
FSP 115-1 provides guidance on determining when investments in certain debt and equity
securities are considered impaired, whether that impairment is other-than-temporary, and on
measuring such impairment loss. FSP 115-1 also includes accounting considerations subsequent
to the recognition of an other-than-temporary impairment and requires certain disclosures
about unrealized losses that have not been recognized as other-than-temporary impairments.
FSP 115-1 is required to be applied to reporting periods beginning after December&nbsp;15, 2005 and
is required to be adopted by Canon in the first quarter beginning January&nbsp;1, 2006. Canon is
currently evaluating the effect that the adoption of FSP 115-1 will have on its consolidated
results of operations and financial condition but does not expect FSP 115-1 to have a material
impact.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">80
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Basis of Presentation and Significant Accounting Policies (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">(y)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Reclassification</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certain reclassifications have been made to the prior years&#146; consolidated financial statements
to conform with the presentation used for the year ended December&nbsp;31, 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Foreign Operations</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Amounts included in the consolidated financial statements relating to subsidiaries operating in
foreign countries are summarized as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>1,751,011</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,500,197</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,339,854</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>767,711</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">632,657</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">564,041</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,774,443</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,548,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,341,221</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>81,916</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70,227</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,274</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">81
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>3.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Marketable Securities and Investments</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The cost, gross unrealized holding gains, gross unrealized holding losses and fair value for
available-for-sale securities and held-to-maturity securities by major security type at December
31, 2005 and 2004 were as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>December 31, 2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>holding</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>holding</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Fair</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Cost</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>gains</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>losses</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>value</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Available-for-sale:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Bank debt securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>71</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>71</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Equity securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>101</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>101</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>172</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>172</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Noncurrent:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Available-for-sale:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Government bonds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>525</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>532</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Corporate debt securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>85</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>88</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Fund trusts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4,553</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,446</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5,999</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Equity securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>11,373</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>15,086</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>26,449</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>16,536</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>16,542</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>33,068</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Held-to-maturity:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Corporate debt securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>20,961</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>20,961</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>37,497</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>16,542</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>10</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>54,029</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">82
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>3.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Marketable Securities and Investments (continued)</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>December 31, 2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>holding</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>holding</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Fair</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Cost</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>gains</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>losses</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>value</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Available-for-sale:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Corporate debt securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">138</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">138</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Bank debt securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Fund trusts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">132</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Equity securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,117</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,213</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,554</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Noncurrent:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Available-for-sale:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Government bonds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">536</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">537</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Corporate debt securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Fund trusts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,064</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">574</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,626</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Equity securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,185</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,628</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,737</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,841</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,975</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Held-to-maturity:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Corporate debt securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,460</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">33,301</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">17,247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">50,435</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">83
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>3.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Marketable Securities and Investments (continued)</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Maturities of debt securities and fund trusts classified as available-for-sale and held-to-maturity
were as follows at December&nbsp;31, 2005:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Available-for-sale securities</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Cost</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Fair value</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Due within one year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Due after one year through
five years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,811</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,243</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Due after five years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,352</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,376</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">5,234</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">6,690</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Held-to-maturity securities</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Cost</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Fair value</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Millions of yen)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Due after one year through five years
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#165;20,961
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#165;20,961</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The gross realized gains for the year ended December&nbsp;31, 2005 and 2004 were Yen 11,049&nbsp;million and
Yen 3,867&nbsp;million, respectively. The gross realized gains for the year ended December&nbsp;31, 2003 and
the gross realized losses for the years ended December&nbsp;31, 2005, 2004 and 2003 were not
significant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At December&nbsp;31, 2005, substantially all of the available-for-sale and held-to-maturity securities
with unrealized losses had been in a continuous unrealized loss position for less than 12&nbsp;months.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Aggregate cost of non-marketable equity securities accounted for under the cost method totaled Yen
16,714&nbsp;million and Yen 14,635&nbsp;million at December&nbsp;31, 2005 and 2004, respectively. Investments
with an aggregate cost of Yen 16,702&nbsp;million were not evaluated for impairment because (a)&nbsp;Canon
did not estimate the fair value of those investments as it was not practicable to estimate the fair
value of the investments and (b)&nbsp;Canon did not identify any events or changes in circumstances that
might have had significant adverse effects on the fair value of those investments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Investments in affiliated companies accounted for by the equity method amounted to Yen 31,418
million and Yen 26,546&nbsp;million at December&nbsp;31, 2005 and 2004, respectively. Canon&#146;s share of the
net earnings (losses)&nbsp;in affiliated companies accounted for by the equity method, included in other
income (deductions), are earnings of Yen 1,646&nbsp;million and Yen 1,921&nbsp;million for the years ended
December&nbsp;31, 2005 and 2004 and losses of Yen 1,124&nbsp;million for the year ended December&nbsp;31, 2003,
respectively.
</DIV>


<P align="center" style="font-size: 10pt">84
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>




<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>4.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Trade Receivables</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Trade receivables are summarized as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Notes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>27,328</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">30,261</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>673,827</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">584,186</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>701,155</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">614,447</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less allowance for doubtful
receivables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(11,728</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,657</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>689,427</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">602,790</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>5.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Inventories</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Inventories comprised the following:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Finished goods</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>359,934</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">352,656</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Work in process</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>132,520</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">121,613</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Raw materials</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>17,741</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,859</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>510,195</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">489,128</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>6.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Property, Plant and Equipment</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Property, plant and equipment are stated at cost less accumulated depreciation and are summarized
as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Land</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>199,595</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">182,330</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Buildings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>997,351</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">824,969</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Machinery and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,164,480</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,053,121</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Construction in progress</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>59,558</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,599</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,420,984</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,135,019</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less accumulated depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1,272,163</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,173,305</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>1,148,821</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">961,714</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">85
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>7.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Finance Receivables and Operating Leases</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Finance receivables represent financing leases which consist of sales-type leases and
direct-financing leases resulting from the marketing of Canon&#146;s and complementary third-party
products. These receivables typically have terms ranging from 1 to 6&nbsp;years. The components of the
finance receivables, which are included in prepaid expenses and other current assets, and other
assets in the accompanying consolidated balance sheets, are as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total minimum lease payments receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>204,774</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">180,707</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unguaranteed residual values</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>13,849</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,816</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Executory costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(2,785</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,533</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unearned income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(23,632</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20,880</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>192,206</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">168,110</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less allowance for doubtful receivables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(8,372</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,068</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>183,834</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">162,042</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less amount due within one year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(69,211</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(61,187</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>114,623</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">100,855</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The cost of equipment leased to customers under operating leases at December&nbsp;31, 2005 and 2004 was
Yen 60,839&nbsp;million and Yen 67,364&nbsp;million, respectively. Accumulated depreciation on equipment
under operating leases at December&nbsp;31, 2005 and 2004 was Yen 45,285&nbsp;million and Yen 52,493&nbsp;million,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following is a schedule by year of the future minimum lease payments to be received under
financing leases and non-cancelable operating leases at December&nbsp;31, 2005.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Financing</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Operating</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>leases</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>leases</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Year ending December&nbsp;31:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">81,967</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,691</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,998</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,846</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,347</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,131</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,314</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">533</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,483</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">204,774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">7,250</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">86
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>8.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Acquisitions</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In 2005, the Company acquired two companies for a total cost of Yen 20,205&nbsp;million, which was paid
in cash. Those companies are engaged in the development, manufacturing and sales of semiconductor
manufacturing equipment, factory automation equipment and vacuum equipment for production of
electronic parts, including semiconductors, flat panel displays, magnetic heads and hard disc
drives. In connection with those transactions, the Company recognized goodwill of Yen 4,885
million and intangible assets of Yen 16,382&nbsp;million, which were classified as other assets in the
accompanying consolidated financial statements. Intangible assets consist primarily of developed
technology, and are subject to a weighted average amortization period of approximately 9&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In 2004, the Company acquired all of the outstanding common shares of a precision plastic mold
manufacturer, in an exchange offering for 577,920 shares of the Company&#146;s common stock. The
aggregate value of the shares exchanged was approximately Yen 2,805&nbsp;million. In connection with
this transaction, the Company recognized goodwill of Yen 1,585&nbsp;million, which was classified as
other assets in the accompanying consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Canon has included the results of operations of these transactions prospectively from the
respective dates of transactions. Canon has not presented the pro forma results of operations of
the acquired businesses because the results are not material to its consolidated results of
operations on either an individual or an aggregate basis.
</DIV>


<P align="center" style="font-size: 10pt">87
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>




<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>9.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Goodwill and Other Intangible Assets</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Intangible assets acquired during the year ended December&nbsp;31, 2005 totaled Yen 42,393&nbsp;million,
which are subject to amortization and, in addition to those recorded from acquired businesses,
primarily consist of internal use software of Yen 23,383&nbsp;million and license fees of Yen 1,116
million. The weighted average amortization period for internal use software and license fees is
approximately 4&nbsp;years and 8&nbsp;years, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The components of acquired intangible assets subject to amortization included in other assets at
December&nbsp;31, 2005 and 2004 were as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31, 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31, 2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>amortization</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>amortization</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Software</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>121,729</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>70,535</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">121,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">79,517</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">License fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>20,567</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>11,329</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,603</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,183</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>23,291</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4,997</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,585</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>165,587</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>86,861</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">153,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">97,285</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Aggregate amortization expense for the years ended December&nbsp;31, 2005, 2004 and 2003 was Yen 20,214
million, Yen 18,295&nbsp;million and Yen 12,438&nbsp;million, respectively. Estimated amortization expense
for the next five years ending December&nbsp;31 is Yen 23,117&nbsp;million in 2006, Yen 17,286&nbsp;million in
2007, Yen 12,911&nbsp;million in 2008, Yen 8,386&nbsp;million in 2009, and Yen 4,366&nbsp;million in 2010.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Intangible assets not subject to amortization other than goodwill at December&nbsp;31, 2005 and 2004
were not significant.
</DIV>


<P align="center" style="font-size: 10pt">88
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>




<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>9.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Goodwill and Other Intangible Assets (continued)</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The changes in the carrying amount of goodwill for the years ended December&nbsp;31, 2005 and 2004 were
as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Year ended December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>24,233</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">22,067</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill acquired during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>15,391</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,156</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Impairment losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(42</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Recognition of acquired company&#146;s tax
benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,298</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Translation adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>537</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">350</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>40,161</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">24,233</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During the year ended December&nbsp;31, 2004, Canon recognized Yen 1,298&nbsp;million of deferred tax
benefits relating to preexisting net operating tax losses of a company acquired in 2003. In
connection therewith, Canon reduced the related goodwill by the same amount.
</DIV>


<P align="center" style="font-size: 10pt">89
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>




<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>10.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Short-Term Loans and Long-Term Debt</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Short-term loans consisting of bank borrowings at December&nbsp;31, 2005 were Yen 67&nbsp;million. The
weighted average interest rate on short-term loans outstanding at December&nbsp;31, 2005 was 2.14%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Long-term debt consisted of the following:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loans, principally from banks,
maturing in installments through 2018;
bearing weighted average interest of
1.40% and 3.05% at December&nbsp;31, 2005
and 2004, respectively, partially
secured by mortgage of property, plant
and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>2,641</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">2,949</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">1.88% Japanese yen notes, due 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">1.71% Japanese yen notes, due 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2.95% Japanese yen notes, due 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2.27% Japanese yen notes, due 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">1.20% Japanese yen convertible
debentures, due 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">309</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">1.30% Japanese yen convertible
debentures, due 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>649</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,487</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>8,784</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,585</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>32,074</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,530</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less amount due within one year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(4,992</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,879</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>27,082</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">28,651</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The aggregate annual maturities of long-term debt outstanding at December&nbsp;31, 2005 were as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Year ending December 31:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,992</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,318</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,351</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">895</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">417</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">32,074</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">90
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>10.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Short-Term Loans and Long-Term Debt (continued)</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Certain property, plant and equipment with a net book carrying value of Yen 7,423&nbsp;million at
December&nbsp;31, 2005 were mortgaged to secure loans from banks.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Canon entered into an agreement whereby certain assets were deposited into an irrevocable trust to
meet the debt service requirements of the: 2.95% Japanese yen notes; and 2.27% Japanese yen notes
in the aggregate amount of Yen 20,000&nbsp;million. The assets contributed by Canon were debt
securities with carrying amounts of Yen 20,961&nbsp;million, at December&nbsp;31, 2005. Cash flows from such
investments will be used solely to satisfy the principal and interest obligations for the debts.
Accordingly, the debt securities are included in the consolidated balance sheet under the caption
of investments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Both short-term and long-term bank loans are made under general agreements which provide that
security and guarantees for present and future indebtedness will be given upon request of the bank,
and that the bank shall have the right to offset cash deposits against obligations that have become
due or, in the event of default, against all obligations due to the bank. Long-term agreements
with lenders other than banks also generally provide that Canon must provide additional security
upon request of the lender.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The 1.30% Japanese yen convertible debentures due 2008 are convertible into approximately 434,000
shares of common stock at a conversion price of Yen 1,497.00 per share at December&nbsp;31, 2005. The
debentures are redeemable at the option of the Company between January&nbsp;1, 2006 and December&nbsp;31,
2007 at declining premiums ranging from 2% to 1%, and at par thereafter.
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>11.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Trade Payables</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Trade payables are summarized as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Notes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>17,567</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">51,081</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>487,559</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">414,315</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>505,126</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">465,396</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">91
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>12.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Employee Retirement and Severance Benefits</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company and certain of its subsidiaries have contributory and noncontributory defined benefit
plans covering substantially all employees after one year of service. Other subsidiaries sponsor
unfunded retirement and severance plans. Benefits payable under the plans are based on employee
earnings and years of service.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The contributory plans in Japan mainly represent the Employees&#146; Pension Fund plans (&#147;EPFs&#148;),
composed of the substitutional portions based on the pay-related part of the old age pension
benefits prescribed by the Welfare Pension Insurance Law and the corporate portions based on
contributory defined benefit pension arrangements established at the discretion of the Company and
its subsidiaries. The substitutional portions of the EPFs represent welfare pension plans carried
on behalf of the Japanese government. These contributory and noncontributory plans are funded in
conformity with the funding requirements of applicable Japanese governmental regulations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In January&nbsp;2003, the Emerging Issues Task Force reached a final consensus on Issue No.&nbsp;03-2 (&#147;EITF
03-2&#148;), &#147;Accounting for the Transfer to the Japanese Government of the Substitutional Portion of
Employee Pension Fund Liabilities,&#148; which addresses accounting for a transfer to the Japanese
government of a substitutional portion of an EPF. During the year ended December&nbsp;31, 2003, the
Company and certain of its domestic subsidiaries received approval from the government for an
exemption from the obligation to pay benefits for future employee service related to the
substitutional portion. During the year ended December&nbsp;31, 2004, the Company and certain of its
domestic subsidiaries received approval to separate the remaining substitutional portion related to
past service by their employees. During the year ended December&nbsp;31, 2004, the Company and certain
of its domestic subsidiaries also completed the transfer of the substitutional portion of the
benefit obligation and the related government-specified portion of the plan assets which were
computed by the government, and were relieved of all related obligations. Canon has accounted for
the entire process at the completion of the transfer to the government of the substitutional
portion of the benefit obligation and the related plan assets as a single settlement transaction in
accordance with EITF 03-2. As a result, Canon recognized a settlement loss of Yen 69,651&nbsp;million
for the year ended December&nbsp;31, 2004, which is determined based on the proportion of the projected
benefit obligation settled to the total projected benefit obligation immediately prior to the
separation. Canon also recognized a subsidy from the government of Yen 86,792&nbsp;million, which is
calculated as the difference between the obligation settled and the assets transferred to the
government. The net gain of Yen 17,141&nbsp;million is included in selling, general and administrative
expenses for the year ended December&nbsp;31, 2004.
</DIV>


<P align="center" style="font-size: 10pt">92
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>




<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>12.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Employee Retirement and Severance Benefits (continued)</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Canon uses a measurement date of October 1 for the majority of its plans.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net periodic benefit cost for Canon&#146;s employee retirement and severance defined benefit plans for
the years ended December&nbsp;31, 2005, 2004 and 2003 consisted of the following components:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Service cost &#151; benefits earned during
the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>25,801</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">26,571</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">29,024</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest cost on projected benefit
obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>16,172</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,108</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,806</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected return on plan assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(19,651</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(17,054</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,959</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of unrecognized net
obligation at transition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>345</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">344</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of prior service cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(8,007</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,814</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,515</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Recognized actuarial loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10,542</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,807</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Settlement loss resulting from plan
termination</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,784</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Settlement loss resulting from
transfer of substitutional portion of</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">EPFs to the Japanese government</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,651</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>25,202</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">107,095</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">46,507</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">93
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>12.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Employee Retirement and Severance Benefits (continued)</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Reconciliations of beginning and ending balances of the benefit obligations and the fair value of
the plan assets are as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in benefit obligations:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Benefit obligations at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>582,212</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">752,390</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Service cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>25,801</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,571</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>16,172</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,108</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Plan participants&#146; contributions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,161</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,142</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amendments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(6,212</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,781</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Actuarial gain</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,340</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,728</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Benefits paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(12,239</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14,143</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Settlement on plan termination</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,482</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Transfer of substitutional portion of EPFs to
the Japanese government</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(191,784</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10,106</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Foreign currency exchange rate changes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>167</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,957</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(15</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(122</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Benefit obligations at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>620,493</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">582,212</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in plan assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fair value of plan assets at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>418,798</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">472,228</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Actual return on plan assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>93,844</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,744</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Employer contributions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>40,059</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,018</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Plan participants&#146; contributions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,161</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,142</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Benefits paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(12,239</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14,143</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Settlement on plan termination</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,274</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Transfer of substitutional portion of EPFs to
the Japanese government</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(104,992</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,486</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Foreign currency exchange rate changes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>409</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,075</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fair value of plan assets at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>545,518</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">418,798</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Funded status</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(74,975</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(163,414</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrecognized actuarial loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>110,424</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">191,376</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrecognized prior service cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(101,552</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(102,427</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrecognized net transition obligation being
recognized over 22&nbsp;years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,955</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net amount recognized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>&#165;</B></TD>
    <TD align="right"><B>(62,148</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(70,165</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amounts recognized in the consolidated balance
sheets consist of:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid pension cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>3,089</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,142</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued pension and severance cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(80,430</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(132,522</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated other comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>15,193</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,158</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net amount recognized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>&#165;</B></TD>
    <TD align="right"><B>(62,148</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(70,165</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">94
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>12.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Employee Retirement and Severance Benefits (continued)</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The accumulated benefit obligation for all defined benefit plans was as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated benefit obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>578,627</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">540,615</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The projected benefit obligations and the fair value of plan assets for the pension plans with
projected benefit obligations in excess of plan assets, and the accumulated benefit obligations and
the fair value of plan assets for the pension plans with accumulated benefit obligations in excess
of plan assets are as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Plans with projected benefit
obligations in excess of plan assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Projected benefit obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>587,162</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">577,022</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fair value of plan assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>510,287</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">411,918</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Plans with accumulated benefit
obligations in excess of plan assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated benefit obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>545,375</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">512,216</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fair value of plan assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>506,634</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">386,921</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Assumptions</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Weighted-average assumptions used to determine benefit obligations are as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Discount rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>2.7%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2.7%</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Assumed rate of increase in future compensation levels</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>3.3%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">3.0%</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">95
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>12.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Employee Retirement and Severance Benefits (continued)</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Weighted-average assumptions used to determine net periodic benefit cost are as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Discount rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>2.7%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2.7%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2.7%</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Assumed rate of increase in future
compensation levels</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>3.0%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2.0%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2.0%</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected long-term rate of return on
plan assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>4.6%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">3.6%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">3.6%</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Canon determines the expected long-term rate of return based on the expected long-term return of
the various asset categories in which it invests. Canon considers the current expectations for
future returns and the actual historical returns of each plan asset category.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Plan assets</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The weighted-average asset allocations of Canon&#146;s benefit plans at December&nbsp;31, 2005 and 2004 and
target asset allocation by asset category are as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Target</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>allocation</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Asset category:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Equity securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>50.8%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">43.0%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">46.3%</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Debt securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>34.6%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">37.2%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">35.6%</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>0.7%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">1.7%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0.3%</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Life insurance company general accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>13.5%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">14.5%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">17.1%</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>0.4%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">3.6%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0.7%</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>100.0%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0%</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Canon&#146;s investment policies are designed to ensure adequate plan assets are available to provide
future payments of pension benefits to eligible participants. Taking into account the expected
long-term rate of return on plan assets, Canon formulates a &#147;model&#148; portfolio comprised of the
optimal combination of equity securities and debt securities. Plan assets are invested in
individual equity and debt securities using the guidelines of the &#147;model&#148; portfolio in order to
produce a total return that will match the expected return on a mid-term to long-term basis. Canon
evaluates the gap between expected return and actual return of invested plan assets on an annual
basis to determine if such differences necessitate a revision in the formulation of the &#147;model&#148;
portfolio. Canon revises the &#147;model&#148; portfolio when and to the extent considered necessary to
achieve the expected long-term rate of return on plan assets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The plan&#146;s equity securities include common stock of the Company and certain of its subsidiaries in
the amounts of Yen 1,311&nbsp;million and Yen 946&nbsp;million at December&nbsp;31, 2005 and 2004, respectively.
</DIV>


<P align="center" style="font-size: 10pt">96
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>




<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>12.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Employee Retirement and Severance Benefits (continued)</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Contributions</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Canon expects to contribute Yen 45,352&nbsp;million to its defined benefit plans for the year ending
December&nbsp;31, 2006.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Estimated future benefit payments</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following benefit payments, which reflect expected future service, as appropriate, are expected
to be paid:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Years ending December&nbsp;31:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>9,798</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10,658</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12,237</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>13,328</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>14,629</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2011 &#150; 2015</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>93,055</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>13.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Income Taxes</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Domestic and foreign components of income before income taxes and minority interests, and the
current and deferred income tax expense (benefit)&nbsp;attributable to such income are summarized as
follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31, 2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Japanese</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Foreign</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income
taxes and minority
interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>492,709</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>119,295</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>612,004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>172,595</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>40,956</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>213,551</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,441</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(4,207</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(766</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>176,036</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>36,749</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>212,785</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">97
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>13.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Income Taxes (continued)</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31, 2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Japanese</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Foreign</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income
taxes and minority
interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">447,864</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">104,252</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">552,116</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">162,679</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">22,275</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">184,954</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,065</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,060</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">161,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">32,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">194,014</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31, 2003</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Japanese</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Foreign</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income
taxes and minority
interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">337,093</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">111,077</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">448,170</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">132,204</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">33,484</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">165,688</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,828</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,793</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,035</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">126,376</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">36,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">162,653</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company and its domestic subsidiaries are subject to a number of income taxes, which, in the
aggregate, represent a statutory income tax rate of approximately 40% for the year ended December
31, 2005 and 42% for the years ended December&nbsp;31, 2004 and 2003.
</DIV>


<P align="center" style="font-size: 10pt">98
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>




<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>13.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Income Taxes (continued)</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Amendments to the Japanese tax regulations were enacted on March&nbsp;24, 2003. As a result of these
amendments, the statutory income tax rate was reduced from approximately 42% to 40% effective from
the year beginning January&nbsp;1, 2005. Consequently, the statutory tax rate utilized for deferred tax
assets and liabilities expected to be settled or realized subsequent to January&nbsp;1, 2005 is
approximately 40%. The adjustments of deferred tax assets and liabilities for this change in the
tax rate amounted to Yen 3,613&nbsp;million and have been reflected in income taxes on the consolidated
statements of income for the year ended December&nbsp;31, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A reconciliation of the Japanese statutory income tax rate and the effective income tax rate as a
percentage of income before income taxes and minority interests is as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended December 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japanese statutory income tax rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>40.0</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">42.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">42.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Increase (reduction)&nbsp;in income taxes
resulting from:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Expenses not deductible for tax purposes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>0.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Tax benefits not recognized on
operating losses of subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income of foreign subsidiaries taxed at
lower than Japanese statutory tax rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1.9</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2.5</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Tax credit for research and development
expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(3.9</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4.0</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Effect of enacted changes in tax laws
and rates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>0.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.3</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Effective income tax rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>34.8</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">35.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">36.3</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net deferred income tax assets and liabilities are reflected on the accompanying consolidated
balance sheets under the following captions:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Prepaid expenses and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>52,116</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">47,679</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>61,325</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84,686</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(3,500</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,873</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other noncurrent liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(36,329</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(30,049</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>73,612</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">99,443</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">99
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>13.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Income Taxes (continued)</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax
liabilities at December&nbsp;31, 2005 and 2004 are presented below:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>13,459</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">11,364</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued business tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>8,599</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,149</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued pension and severance cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>28,665</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,680</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Minimum pension liability adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5,592</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,778</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Research and development &#151; costs
capitalized for tax purposes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>23,629</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,499</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>21,839</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,406</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>20,132</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,976</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net operating losses carried forward</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,388</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,799</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>24,362</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,258</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total gross deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>147,665</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">162,909</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(3,345</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,495</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>144,320</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">159,414</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Undistributed earnings of foreign
subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(6,806</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,638</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net unrealized gains on securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(6,480</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,833</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Tax deductible reserve</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(14,307</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,975</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Financing lease revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(35,395</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(30,196</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(7,720</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,329</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total gross deferred tax liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(70,708</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(59,971</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>73,612</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">99,443</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The net changes in the total valuation allowance for the years ended December&nbsp;31, 2005, 2004 and
2003 were decreases of Yen 150&nbsp;million, Yen 4,906&nbsp;million and Yen 1,282&nbsp;million, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Based upon the level of historical taxable income and projections for future taxable income over
the periods which the net deductible temporary differences are expected to reverse, management
believes it is more likely than not that Canon will realize the benefits of these deferred tax
assets, net of the existing valuation allowance at December&nbsp;31, 2005.
</DIV>

<P align="center" style="font-size: 10pt">100
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>13.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Income Taxes (continued)</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At December&nbsp;31, 2005, Canon had net operating losses which can be carried forward for income tax
purposes of Yen 4,697&nbsp;million to reduce future taxable income. Periods available to reduce future
taxable income vary in each tax jurisdiction and generally range from one year to ten years as
follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Within one year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,943</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">After one year through five years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,012</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">After five years through ten years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Indefinite period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">648</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,697</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Income taxes have not been accrued on undistributed earnings of domestic subsidiaries as the tax
law provides a means by which the dividends from a domestic subsidiary can be received tax free.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Canon has not recognized deferred tax liabilities of Yen 29,728&nbsp;million for a portion of
undistributed earnings of foreign subsidiaries that arose for the year ended December&nbsp;31, 2005 and
prior years because Canon currently does not expect to have such amounts distributed or paid as
dividends to the Company in the foreseeable future. Deferred tax liabilities will be recognized
when Canon expects that it will realize those undistributed earnings in a taxable manner, such as
through receipt of dividends or sale of the investments. At December&nbsp;31, 2005, such undistributed
earnings of these subsidiaries were Yen 531,499&nbsp;million.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>14.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Common Stock</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For the years ended December&nbsp;31, 2005, 2004 and 2003, the Company issued 765,528 shares, 6,638,606
shares and 2,202,401 shares of common stock, respectively, in connection with the conversion of
convertible debt. In accordance with the Japanese Commercial Code, conversion into common stock of
convertible debt is accounted for by crediting one-half or more of the conversion price to the
common stock account and the remainder to the additional paid-in capital account.
</DIV>

<P align="center" style="font-size: 10pt">101
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>15.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Legal Reserve and Retained Earnings</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Japanese Commercial Code provides that an amount equal to at least 10% of cash dividends and
other distributions from retained earnings paid by the Company and its Japanese subsidiaries be
appropriated as a legal reserve. No further appropriations are required when the total amount of
the additional paid-in capital and the legal reserve equals 25% of their respective stated capital.
The Japanese Commercial Code also provides that to the extent that the sum of the additional
paid-in capital and the legal reserve exceeds 25% of the stated capital, the amount of the excess
(if any) is available for appropriations by the resolution of the shareholders. Certain foreign
subsidiaries are also required to appropriate their earnings to legal reserves under the laws of
the respective countries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Cash dividends and appropriations to the legal reserve charged to retained earnings for the years
ended December&nbsp;31, 2005, 2004 and 2003 represent dividends paid out during those years and the
related appropriations to the legal reserve. Retained earnings at December&nbsp;31, 2005 do not reflect
current year-end dividends in the amount of Yen 59,913&nbsp;million which will be payable in March&nbsp;2006
upon approval by the stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The amount available for dividends under the Japanese Commercial Code is based on the amount
recorded in the Company&#146;s nonconsolidated books of account in accordance with financial accounting
standards of Japan. Such amount was Yen 1,366,355&nbsp;million at December&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Retained earnings at December&nbsp;31, 2005 included Canon&#146;s equity in undistributed earnings of
affiliated companies accounted for by the equity method in the amount of Yen 8,714&nbsp;million.
</DIV>

<P align="center" style="font-size: 10pt">102
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>16.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Other Comprehensive Income (Loss)</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Changes in accumulated other comprehensive income (loss)&nbsp;are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation
adjustments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>&#165;</B></TD>
    <TD align="right"><B>(79,751</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(83,801</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(68,524</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustments for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>53,979</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,277</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(25,772</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(79,751</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(83,801</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net unrealized gains and losses on
securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7,470</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,784</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,168</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustments for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1,397</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">686</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,952</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>6,073</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,784</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net gains and losses on derivative
instruments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(693</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(297</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(334</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustments for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(481</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(396</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1,174</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(693</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(297</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minimum pension liability adjustments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(28,338</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(65,961</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(96,441</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustments for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>20,999</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,623</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,480</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(7,339</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(28,338</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(65,961</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total accumulated other comprehensive
income (loss):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(101,312</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(143,275</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(166,467</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustments for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>73,100</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,963</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,192</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>&#165;</B></TD>
    <TD align="right"><B>(28,212</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(101,312</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(143,275</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">103
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>16. Other Comprehensive Income (Loss) (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Tax effects allocated to each component of other comprehensive income (loss)&nbsp;and reclassification
adjustments are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Before-tax</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Tax (expense)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Net-of-tax</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>or benefit</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>2005:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>55,345</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>&#165;</B></TD>
    <TD align="right"><B>(1,366</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>53,979</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net unrealized gains and losses on securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amount arising during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>9,005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(3,892</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5,113</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Reclassification adjustments for gains and
losses realized in net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(10,793</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4,283</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(6,510</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net change during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1,788</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>391</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1,397</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net gains and losses on derivative instruments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amount arising during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(9,137</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,658</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(5,479</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Reclassification adjustments for gains
and losses realized in net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>8,333</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(3,335</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4,998</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net change during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(804</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>323</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(481</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minimum pension liability adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>40,364</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(19,365</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>20,999</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>93,117</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>&#165;</B></TD>
    <TD align="right"><B>(20,017</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>73,100</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>2004:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(350</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,050</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net unrealized gains and losses on securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amount arising during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,022</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,202</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,820</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Reclassification adjustments for gains
and losses realized in net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,698</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,134</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net change during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,324</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(638</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">686</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net gains and losses on derivative
instruments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amount arising during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,673</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(965</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Reclassification adjustments for gains
and losses realized in net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">929</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(360</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">569</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net change during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(744</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">348</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(396</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minimum pension liability adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78,179</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(40,556</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,623</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">83,159</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(41,196</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">41,963</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">104
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>16.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Other Comprehensive Income (Loss) (continued)</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Before-tax</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Tax (expense)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Net-of-tax</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>or benefit</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>2003:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation adjustments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amount arising during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(19,115</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(15,646</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Reclassification adjustments for gains and
losses realized in net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">369</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">369</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net change during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(18,746</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,277</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net unrealized gains and losses on securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amount arising during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,129</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,477</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,652</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Reclassification adjustments for gains and
losses realized in net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">515</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(215</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net change during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,644</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,692</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,952</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net gains and losses on derivative
instruments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amount arising during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(726</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">305</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(421</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Reclassification adjustments for gains
and losses realized in net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(332</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">458</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net change during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(27</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minimum pension liability adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70,218</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(39,738</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,480</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">64,180</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(40,988</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">23,192</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">105
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>17.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Net Income per Share</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A reconciliation of the numerators and denominators of basic and diluted net income per share
computations is as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>384,096</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">343,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">275,730</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of dilutive securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">1.20% Japanese yen
convertible debentures, due
2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">1.30% Japanese yen
convertible debentures, due
2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>18</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>384,119</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">343,440</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">275,852</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="center"><DIV style="font-size: 8pt"><B>(Number of shares)</B></DIV></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average common shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>887,173,810</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">885,365,124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">878,648,844</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of dilutive securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">1.20% Japanese yen convertible
debentures, due 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>123,837</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">462,823</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,664,354</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">1.30% Japanese yen convertible
debentures, due 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>745,954</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,125,278</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,382,560</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted common shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>888,043,601</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">887,953,225</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">887,695,758</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="center"><DIV style="font-size: 8pt"><B>(Yen)</B></DIV></TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>432.94</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">387.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">313.81</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>432.55</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">386.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">310.75</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">106
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>18.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Derivatives and Hedging Activities</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Risk management policy</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Canon operates internationally, exposing it to the risk of changes in foreign currency exchange
rates and interest rates. Derivative financial instruments are comprised principally of foreign
exchange contracts and interest rate swaps utilized by the Company and certain of its subsidiaries
to reduce these risks. Canon assesses foreign currency exchange rate risk and interest rate risk
by continually monitoring changes in these exposures and by evaluating hedging opportunities.
Canon does not hold or issue derivative financial instruments for trading purposes. Canon is also
exposed to credit-related losses in the event of non-performance by counterparties to derivative
financial instruments, but it is not expected that any counterparties will fail to meet their
obligations, because most of the counterparties are internationally recognized financial
institutions and contracts are diversified across a number of major financial institutions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Foreign currency exchange rate risk management</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Canon&#146;s international operations expose Canon to the risk of changes in foreign currency exchange
rates. Canon uses foreign exchange contracts to manage certain foreign currency exchange exposures
principally from the exchange of U.S. dollar and euro into Japanese yen. These contracts are
primarily used to hedge the foreign currency exposure of forecasted intercompany sales and
intercompany trade receivables which are denominated in foreign currencies. In accordance with
Canon&#146;s policy, a specific portion of foreign currency exposure resulting from forecasted
intercompany sales are hedged using foreign exchange contracts which principally mature within
three months.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Interest rate risk management</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Canon&#146;s exposure to the risk of changes in interest rates relates primarily to its debt
obligations. The variable-rate debt obligations expose Canon to variability in their cash flows
due to change in interest rates. To manage the variability in cash flows caused by interest rate
changes, Canon enters into interest rate swaps when it is determined to be appropriate based on
market conditions. The interest rate swaps change variable-rate debt obligations to fixed-rate
debt obligations by primarily entering into pay-fixed, receive-variable interest rate swaps.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Fair value hedge</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Derivative financial instruments designated as fair value hedges principally relate to interest
rate swaps associated with fixed rate debt obligations. Changes in fair values of the hedged debt
obligations and derivative financial instruments designated as fair value hedges of these debt
obligations are recognized in other income (deductions). There is no hedging ineffectiveness or
net gains or losses excluded from the assessment of hedge effectiveness for the years ended
December&nbsp;31, 2004 and 2003 as the critical terms of the interest rate swaps match the terms of the
hedged debt obligations.
</DIV>

<P align="center" style="font-size: 10pt">107
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>18.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Derivatives and Hedging Activities (continued)</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Cash flow hedge</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Changes in the fair value of derivative financial instruments designated as cash flow hedges,
including foreign exchange contracts associated with forecasted intercompany sales and interest
rate swaps associated with variable rate debt obligations, are reported in accumulated other
comprehensive income (loss). These amounts are subsequently reclassified into earnings through
other income (deductions)&nbsp;in the same period as the hedged items affect earnings. Substantially
all amounts recorded in accumulated other comprehensive income (loss)&nbsp;at year-end are expected to
be recognized in earnings over the next twelve months. Canon excludes the time value component
from the assessment of hedge effectiveness.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The amount of the hedging ineffectiveness was not material for the years ended December&nbsp;31, 2005,
2004 and 2003. The amount of net gains or losses excluded from the assessment of hedge
effectiveness (time value component) which was recorded in other income (deductions)&nbsp;was net losses
of Yen 3,725&nbsp;million, Yen 2,096&nbsp;million and Yen 490&nbsp;million for the years ended December&nbsp;31, 2005,
2004 and 2003, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Derivatives not designated as hedges</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Canon has entered into certain foreign exchange contracts to manage its foreign currency exposures.
These foreign exchange contracts have not been designated as hedges. Accordingly, the changes in
fair value of the contracts are recorded in earnings immediately.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Contract amounts of foreign exchange contracts at December&nbsp;31, 2005 and 2004 are set forth below:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">To sell foreign currencies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>645,188</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">584,208</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">To buy foreign currencies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>46,424</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,201</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">108
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>19.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Commitments and Contingent Liabilities</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Commitments</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At December&nbsp;31, 2005, commitments outstanding for the purchase of property, plant and equipment
approximated Yen 87,244&nbsp;million, and commitments outstanding for the purchase of parts and raw
materials approximated Yen 67,831&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Canon occupies sales offices and other facilities under lease arrangements accounted for as
operating leases. Deposits made under such arrangements aggregated Yen 13,790&nbsp;million and Yen
14,307&nbsp;million at December&nbsp;31, 2005 and 2004, respectively, and are reflected under noncurrent
receivables on the accompanying consolidated balance sheets. Rental expenses under the operating
lease arrangements amounted to Yen 38,297&nbsp;million, Yen 41,381&nbsp;million and Yen 42,131&nbsp;million for
the years ended December&nbsp;31, 2005, 2004 and 2003, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Future minimum lease payments required under noncancellable operating leases that have initial or
remaining lease terms in excess of one year at December&nbsp;31, 2005 are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Year ending December 31:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">14,571</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,723</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,970</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,684</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,139</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,502</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total future minimum lease payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">52,589</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">109
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>19.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Commitments and Contingent Liabilities (continued)</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Guarantees</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Canon provides guarantees for bank loans of its employees, affiliates and other companies. The
guarantees for the employees are principally made for their housing loans. The guarantees of loans
of its affiliates and other companies are made to ensure that those companies operate with less
financial risk.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For each guarantee provided, Canon would have to perform under a guarantee if the borrower defaults
on a payment within the contract periods of 1&nbsp;year to 30&nbsp;years, in the case of employees with
housing loans, and of 1&nbsp;year to 10&nbsp;years, in the case of affiliates and other companies. The
maximum amount of undiscounted payments Canon would have had to make in the event of default is Yen
38,550&nbsp;million at December&nbsp;31, 2005. The carrying amounts of the liabilities recognized for
Canon&#146;s obligations as a guarantor under those guarantees at December&nbsp;31, 2005 were not
significant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Canon also issues contractual product warranties under which it generally guarantees the
performance of products delivered and services rendered for a certain period or term. Changes in
accrued product warranty cost for the year ended December&nbsp;31, 2005 and 2004 are summarized as
follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Year ended December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>14,264</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">10,512</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Addition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>18,510</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,319</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Utilization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(15,580</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,400</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(448</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(167</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>16,746</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">14,264</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Legal proceedings</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In February&nbsp;2003, a lawsuit was filed by St. Clair Intellectual Property Consultants, Inc. (&#147;St.
Clair&#148;) against the Company and one of its subsidiaries in the United States District Court of
Delaware, which accused the Company of infringement of patents related to certain technology. In
connection with this case, in October&nbsp;2004, a jury preliminarily found damages against the Company
of approximately Yen 4,000&nbsp;million based on a percentage of certain product sales in the United
States through 2003. Subsequent to this jury finding, St. Clair also made a motion to the court for
damages relating to certain 2004 sales, using the same royalty rate awarded by the jury which could
result in additional in damages. There are additional defenses that
are yet to be litigated in a
follow-up non-jury trial solely before a judge; thus, a final decision by the court, as to both infringement
and the total amount of damages, has not yet been reached.
</DIV>

<P align="center" style="font-size: 10pt">110
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>19.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Commitments and Contingent Liabilities (continued)</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In November&nbsp;2003, a lawsuit was filed by a former employee against the Company at the Tokyo
District Court in Japan. The lawsuit alleges that the former employee is entitled to Yen 45,872
million as compensation for an invention related to certain technology used by the Company, and the
former employee has sued for a partial payment of Yen 1,000&nbsp;million and interest thereon. The case
is still pending and the final outcome is not yet determinable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In Germany, Verwertungsgesellschaft Wort (&#147;VG Wort&#148;), a collecting agency representing certain
copyright holders, has filed a series of lawsuits seeking to impose copyright levies upon digital
products such as PCs and printers, that allegedly enable the reproduction of copyrighted materials,
against the companies importing and distributing these digital products. In May&nbsp;2004, VG Wort
filed a civil lawsuit against Hewlett-Packard GmbH seeking for levies on multi-function printers.
This is an industry test case under which Hewlett-Packard GmbH represents other companies sharing
common interests, and Canon has undertaken to be bound by the final decision of this court case.
The court of first instance and the court of appeals held that the multi-function printers were
subject to a levy. In particular, the court of appeals ordered Hewlett-Packard GmbH to pay the
amount equivalent to the levies imposed on photocopiers (EUR 38.35 to EUR 613.56 per unit,
depending on printing speed and color printing capability). This lawsuit is currently under appeal
before the German Federal Supreme Court. With regard to single-function printers, VG Wort filed a
separate lawsuit on January&nbsp;3, 2006 against Canon seeking for payment of copyright levies. Canon,
other companies and the industry associations have expressed opposition to such extension of the
levy scope and the final conclusion of these court cases including the amount of levies to be
imposed, remains uncertain.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Canon is involved in various claims and legal actions, including those noted above, arising in the
ordinary course of business. In accordance with SFAS No.&nbsp;5, &#147;Accounting for Contingencies,&#148; Canon
has recorded provisions for liabilities when it is probable that liabilities have been incurred and
the amount of loss can be reasonably estimated. Canon reviews these provisions at least quarterly
and adjusts these provisions to reflect the impact of the negotiations, settlements, rulings,
advice of legal counsel and other information and events pertaining to a particular case. Based on
its experience, Canon believes that any damage amounts claimed in the specific matters discussed
above are not a meaningful indicator of Canon&#146;s potential liability. In the opinion of management,
the ultimate disposition of the above mentioned matters will not have a material adverse effect on
Canon&#146;s consolidated financial position, results of operations, or cash flows. However, litigation
is inherently unpredictable. While Canon believes that it has valid defenses with respect to legal
matters pending against it, it is possible that Canon&#146;s consolidated financial position, results of
operations, or cash flows could be materially affected in any particular period by the unfavorable
resolution of one or more of these matters.
</DIV>

<P align="center" style="font-size: 10pt">111
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>20.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Disclosures about the Fair Value of Financial Instruments and Concentrations of Credit Risk</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Fair value of financial instruments</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The estimated fair values of Canon&#146;s financial instruments at December&nbsp;31, 2005 and 2004 are set
forth below. The following summary excludes cash and cash equivalents, trade receivables, finance
receivables, noncurrent receivables, short-term loans, trade payables, accrued expenses for which
fair value approximate their carrying amounts. The summary also excludes marketable securities and
investments which are disclosed in Note 3.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Estimated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Estimated</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>fair value</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>fair value</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term debt, including
current installments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>&#165;</B></TD>
    <TD align="right"><B>(32,074</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>&#165;</B></TD>
    <TD align="right"><B>(35,194</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(38,530</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(44,620</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign exchange contracts:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,250</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,250</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,875</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,875</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(10,062</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(10,062</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,020</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,020</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">112
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Canon Inc. and Subsidiaries
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 18pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>20.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Disclosures about the Fair Value of Financial Instruments and Concentrations of Credit
Risk (continued)</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following methods and assumptions are used to estimate the fair value in the above table.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Long-term debt</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The fair values of Canon&#146;s long-term debt instruments are based on the quoted price in the most
active market or the present value of future cash flows associated with each instrument discounted
using Canon&#146;s current borrowing rate for similar debt instruments of comparable maturity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Foreign exchange contracts</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The fair values of foreign exchange contracts, all of which are used for purposes other than
trading, are estimated by obtaining quotes from brokers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Limitations</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Fair value estimates are made at a specific point in time, based on relevant market information and
information about the financial instruments. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly
affect the estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Concentrations of credit risk</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At December&nbsp;31, 2005 and 2004, one customer accounted for approximately 12% and 13% of consolidated
trade receivables, respectively. Although Canon does not expect that the customer will fail to
meet its obligations, Canon is potentially exposed to concentrations of credit risk if the customer
failed to perform according to the terms of the contracts.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>21.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Supplemental Cash Flow Information</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For the years ended December&nbsp;31, 2005, 2004 and 2003, aggregate common stock and additional paid-in
capital arising from conversion of convertible debt amounted to Yen 1,147&nbsp;million, Yen 9,938
million and Yen 3,297&nbsp;million, respectively.
</DIV>


<P align="center" style="font-size: 10pt">113
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">





<DIV align="center" style="font-size: 10pt; margin-top: 18pt">CANON INC. AND SUBSIDIARIES
</DIV>

<DIV align="left">
<A name="195"></A>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Valuation and Qualifying Accounts
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Years ended December&nbsp;31, 2005, 2004 and 2003
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Balance at</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Add</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deduct</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Add</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Balance</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>beginning of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>charge to</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>bad debts</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>translation</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>at end of</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>period</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>income</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>written off</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>adjustments</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>period</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year ended December&nbsp;31, 2005:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Allowance for doubtful receivables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">11,657</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">560</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,180</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">11,728</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year ended December&nbsp;31, 2004:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Allowance for doubtful receivables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">14,423</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">449</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,515</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">11,657</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year ended December&nbsp;31, 2003:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Allowance for doubtful receivables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">12,031</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">5,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">2,878</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">14,423</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">114
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="196"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;18.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Financial Statements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable.
</DIV>
<DIV align="left">
<A name="197"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;19.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Financial Statements and Exhibits</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The following consolidated financial statements and schedule II included in Item&nbsp;17. &#147;Financial Statements.&#148;</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Consolidated financial statements of Canon Inc. and Subsidiaries:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Report of Ernst &#038; Young ShinNihon, Independent Registered Public
Accounting Firm</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Report of KPMG AZSA &#038; Co., Independent Registered Public
Accounting Firm</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Consolidated Balance Sheets as of December&nbsp;31, 2005 and 2004</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Consolidated Statements of Income for the years ended December&nbsp;31, 2005,
2004 and 2003</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Consolidated Statements of Stockholders&#146; Equity for the years ended
December&nbsp;31, 2005, 2004 and 2003</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Consolidated Statements of Cash Flows for the years ended December&nbsp;31,
2005, 2004 and 2003</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Notes to Consolidated Financial Statements</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Schedule:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Schedule&nbsp;II Valuation and Qualifying Accounts for the years ended
December&nbsp;31, 2005, 2004 and 2003</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>List of exhibits</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Exhibit:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">1.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Articles of Incorporation of Canon Inc. (Translation)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">1.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Regulations of the Board of Directors of Canon Inc. (Translation), incorporated by
reference from the annual report on Form20-F (Commission file number
001-15122) filed on June&nbsp;10, 2004</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Regulations for Handling of Shares of Canon Inc. (Translation), incorporated by
reference from the annual report on Form20-F (Commission file number
001-15122) filed on June&nbsp;16, 2005</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">8</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>List of Significant Subsidiaries (See &#147;Organizational Structure&#148; in Item&nbsp;4.C. of this
Form 20-F)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">11.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Canon Group Code of Conduct (Translation) , incorporated by reference from the annual
report on Form20-F (Commission file number 001-15122) filed on June&nbsp;10, 2004</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">11.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Code of Ethics (Supplement to The Canon Group Code of Conduct) (Translation),
incorporated by reference from the annual report on Form20-F
(Commission file number 001-15122) filed on June
10, 2004</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">12</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>302 Certifications</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">13</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>906 Certification</TD>
</TR>


</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">115
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>
<DIV align="left">
<A name="198"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">SIGNATURES
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to the requirements of Section&nbsp;12 of the Securities Exchange Act of
1934, as amended, the registrant certifies that it meets all of the
requirements for filing on Form 20-F and has duly caused this Annual Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
</DIV>


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">CANON INC.<BR>
(Registrant)<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ Toshizo Tanaka
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">(Senior Managing Director,&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Group Executive of Finance and<BR>
Accounting Headquarters)&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>
<DIV align="left" style="font-size: 10pt; margin-left: 48%; margin-top: 6pt">Canon INC.<BR>
30-2, Shimomaruko 3-chome,<BR>
Ohta-ku, Tokyo 146-8501, Japan
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Date April&nbsp;10, 2006

</DIV>

<P align="center" style="font-size: 10pt">116
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="199"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>EXHIBIT INDEX</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="15%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="82%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Exhibit number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Title</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;1.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Articles of Incorporation of Canon Inc. (Translation)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;1.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Regulations of the Board of Directors of Canon Inc. (Translation),
incorporated by reference from the annual report
on Form&nbsp;20-F (Commission file number 001-15122) filed on June&nbsp;10, 2004</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Regulations for Handling of Shares of Canon Inc. (Translation), incorporated
by reference from the annual report
on Form&nbsp;20-F (Commission file number 001-15122) filed on June&nbsp;16, 2005</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">List of Significant Subsidiaries (See &#147;Organizational Structure&#148; in Item
4.C. of this Form&nbsp;20-F)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;11.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Canon Group Code of Conduct (Translation) , incorporated by reference from
the annual report
on Form&nbsp;20-F (Commission file number 001-15122) filed on June&nbsp;10, 2004</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;11.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Code of Ethics (Supplement to The Canon Group Code of Conduct)
(Translation), incorporated by reference from the annual report on
Form&nbsp;20-F (Commission file number 001-15122) filed on June&nbsp;10, 2004</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;12
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">302 Certifications</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;13
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">906 Certification</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">117
</DIV>

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CANON INC.
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 20-F
o
REGISTRATION STATEMENT PURSUANT
TO SECTION 12(b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
þ
ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
OR
o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
Commission
file number 001-15122
CANON KABUSHIKI KAISHA
(Name of Registrant in Japanese as specified in its charter)
CANON INC.
(Name of Registrant in English as specified in its charter)
JAPAN
(Jurisdiction of incorporation or organization)
30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo 146-8501, Japan
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
Name of each exchange on which registered
(1) Common Stock (the "shares")
New York Stock Exchange*
(2) American Depositary Shares ("ADSs"), each of which represents one share
New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
_________________________
Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act.
None
(Title of Class)
* Not for trading, but only for technical purposes in connection with the registration of ADSs.
Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the
annual report.
As of December 31, 2005, 888,742,779 shares of common stock, including 49,384,651
ADSs, were outstanding.
Table of Contents
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities
Act.  Yes
þ
No
o
If
this report is an annual or transition report, indicate by check mark
if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes
o
No
þ
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
þ
Accelerated filer
o
Non-accelerated filer
o
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17
þ
Item 18
o
If this is an annual report, indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
o
No
þ
Table of Contents
TABLE OF CONTENTS
Page number
CERTAIN DEFINED TERMS, CONVENTIONS AND PRESENTATION OF FINANCIAL INFORMATION
1
FORWARD-LOOKING INFORMATION
1
PART I
Item 1.    Identity of Directors, Senior Management and Advisers
2
Item 2.    Offer Statistics and Expected Timetable
2
Item 3.    Key Information
2
A.
Selected financial data
2
B.
Capitalization and indebtedness
3
C.
Reasons for the offer and use of proceeds
3
D.
Risk factors
3
Item 4.    Information on the Company
9
A.
History and development of the Company
9
B.
Business overview
10
Products
10
Marketing and distribution
13
Service
13
Net sales by product group and geographic area
14
Seasonality
15
Sources of supply
15
Competition
15
Patents and licenses
16
Environmental regulations
17
C.
Organizational structure
19
D.
Property, plants and equipment
20
Item 5.    Operating and Financial Review and Prospects
23
A.
Operating results
23
Overview
23
Critical accounting policies and estimates
24
Consolidated result of operations
26
Fiscal 2005 compared with fiscal 2004
26
Fiscal 2004 compared with fiscal 2003
29
Foreign operations and foreign currency transactions
34
Recent developments
34
B.
Liquidity and capital resources
34
C.
Research and development, patents and licenses
35
D.
Trend information
36
Trend information
36
Forward looking statements
37
E.
Off-balance sheet arrangements
38
F.
Contractual obligations
38
Item 6.    Directors, Senior Management and Employees
39
A.
Directors and senior management
39
B.
Compensation
43
C.
Board practices
44
D.
Employees
44
E.
Share ownership
45
Item 7.    Major Shareholders and Related Party Transactions
46
A.
Major shareholders
46
B.
Related party transactions
46
C.
Interests of experts and counsel
46
i
Table of Contents
Page number
Item 8.    Financial Information
47
A.
Consolidated financial statements and other financial information
47
Consolidated financial statements
47
Legal proceedings
47
Dividend policy
47
B.
Significant changes
48
Item 9.    The Offer and Listing
48
A.
Offer and listing details
48
Trading in domestic markets
48
Trading in foreign markets
49
B.
Plan of distribution
49
C.
Markets
49
Item 10.  Additional Information
50
A.
Share capital
50
B.
Memorandum and articles of association
50
C.
Material contracts
54
D.
Exchange controls
54
E.
Taxation
55
F.
Dividends and paying agents
57
G.
Statement by experts
57
H.
Documents on display
57
I.
Subsidiary information
57
Item 11.  Quantitative and Qualitative Disclosures About Market Risk
57
Market risk exposures
57
Equity price risk
58
Foreign
currency exchange rate and interest rate risk
58
Item 12.  Description of Securities Other than Equity Securities
59
PART II
Item 13.  Defaults, Dividend Arrearages and Delinquencies
60
Item 14.  Material Modifications to the Rights of Security Holders and Use of Proceeds
60
Item 15.  Controls and Procedures
61
Item 16A.  Audit Committee Financial Expert
61
Item 16B.  Code of Ethics
61
Item 16C.  Principal Accountant Fees and Services
61
Item 16D.  Exemptions from the Listing Standards for Audit Committees
62
Item 16E.  Purchases of Equity Securities by the Issuer and Affiliated Purchasers
63
PART III
Item 17.  Financial Statements
64
Reports of Independent Registered Public Accounting Firms
65
Consolidated Balance Sheets
67
Consolidated Statements of Income
68
Consolidated Statements of Stockholders' Equity
69
Consolidated Statements of Cash Flows
70
Notes to Consolidated Financial Statements
71
Valuation and Qualifying Accounts
114
Item 18.  Financial Statements
115
Item 19.  Financial Statements and Exhibits
115
SIGNATURES
116
EXHIBIT INDEX
117
EX-1.1 ARTICLES OF INCORPORATION OF CANON INC.(TRANSLATION)
EX-12 302 CERTIFICATIONS
EX-13 906 CERTIFICATION
ii
Table of Contents
CERTAIN DEFINED TERMS, CONVENTIONS AND PRESENTATION OF FINANCIAL INFORMATION
All information contained in this Annual Report is as of December 31, 2005 unless otherwise
specified.
References in this discussion to the "Company" are to Canon Inc. and, unless otherwise indicated,
references to the financial condition or operating results of "Canon" refer to Canon Inc. and its consolidated subsidiaries.
On March 31, 2006, the noon buying rate for yen in New York City as reported by the Federal Reserve
Bank of New York was Yen117.48= U.S.$1.
The Company's fiscal year end is December 31. In this Annual Report "fiscal 2005" refers to the
Company's fiscal year ended December 31, 2005, and other fiscal years of the Company are referred to in a corresponding manner.
FORWARD-LOOKING INFORMATION
This Annual Report contains forward-looking statements and information relating to Canon that are
based on beliefs of its management as well as
assumptions made by and information currently available to Canon Inc. When used in this Annual
Report, the words "anticipate," "believe," "estimate,"
"expect," "intend," "may," "plan," "project" and "should" and similar expressions, as they relate
to Canon or its management, are intended to
identify forward-looking statements. Such statements reflect the current views and assumptions of
the Company with respect to future events and are subject to
risks and uncertainties. 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 Annual
Report. 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 as anticipated,
believed, estimated, expected, intended, planned or projected. Canon Inc. does not intend or assume
any obligation to update these forward-looking statements.
1
Table of Contents
PART I
Item 1.   Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2.   Offer Statistics and Expected Timetable
Not applicable.
Item 3.   Key Information
A.   Selected financial data
The following selected consolidated financial data has been derived from the consolidated
financial statements of Canon as of each of the dates and for each of the periods indicated below. This information should be read in conjunction with and
qualified in its entirety by reference to the Consolidated Financial Statements of Canon Inc. and subsidiaries, including the notes thereto, included in this
Annual Report. These financial statements have been audited by Ernst & Young ShinNihon, Independent
Registered Public Accounting Firm as of and for the year ended December 31, 2005 and 2004. The
financial statements for periods prior to the year ended December 31, 2004 were audited by KPMG
AZSA & Co., Independent Registered Public Accounting Firm.
Selected financial data *1:
2005
2004
2003
2002
2001
(Millions of yen except average number of shares and per share data)
Net sales
¥
3,754,191
¥
3,467,853
¥
3,198,072
¥
2,940,128
¥
2,907,573
Operating profit
583,043
543,793
454,424
346,359
281,839
Income before cumulative effect of change
in accounting principle
384,096
343,344
275,730
190,737
163,869
Net income
384,096
343,344
275,730
190,737
167,561
Advertising expenses
106,250
111,770
100,278
71,725
66,837
Research and development expenses
286,476
275,300
259,140
233,669
218,616
Depreciation of property,
plant and equipment
205,727
174,397
168,636
158,469
147,286
Capital expenditures
383,784
318,730
210,038
198,702
207,674
Long-term debt,
excluding current installments
27,082
28,651
59,260
81,349
95,526
Common stock
174,438
173,864
168,892
167,242
165,287
Stockholders' equity
2,604,682
2,209,896
1,865,545
1,591,950
1,458,476
Total assets
4,043,553
3,587,021
3,182,148
2,942,706
2,844,756
Average number of common shares in thousands
887,174
885,365
878,649
876,716
875,960
Per share data:
Income before cumulative effect of change in accounting principle:
Basic
¥
432.94
¥
387.80
¥
313.81
¥
217.56
¥
187.07
Diluted
432.55
386.78
310.75
214.80
184.55
Net income:
Basic
¥
432.94
¥
387.80
¥
313.81
¥
217.56
¥
191.29
Diluted
432.55
386.78
310.75
214.80
188.70
Cash dividends declared
100.00
65.00
50.00
30.00
25.00
Cash dividends declared (U.S.$)*2
$
0.870
$
0.601
$
0.464
$
0.254
$
0.196
Notes:
1.
The above financial data are prepared in accordance with U.S. generally accepted accounting
principles.
2.
Annual cash dividends declared (U.S.$) translated from yen based on a weighted average of
the noon buying rates for yen in New York city as reported by the Federal Reserve Bank of New York in effect on the date of each semiannual
dividend payment.
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Table of Contents
The following table provides the noon buying rates for Japanese yen in New York City as
reported by the Federal Reserve Bank of New York expressed in Japanese yen per U.S.$1 during the periods indicated and the high and low noon buying rates for
Japanese yen per U.S.$1 during the months indicated.
Yen exchange rates per U.S. dollar:
Average
Term end
High
Low
2001
122.18
131.04
114.26
131.47
2002
124.81
118.75
115.71
134.77
2003
115.83
107.13
106.93
121.42
2004
107.63
102.68
102.56
114.30
2005
- Year
110.74
117.88
120.93
102.26
- 1(st) half
110.91
110.91
102.26
- July
112.25
113.42
110.47
- August
110.84
112.12
109.37
- September
113.29
113.32
109.66
- October
116.36
116.36
113.54
- November
119.66
119.66
116.63
- December
117.88
120.93
115.78
2006
- January
116.88
117.55
113.96
- February
115.82
118.95
115.82
- March
117.48
119.07
115.89
B.   Capitalization and indebtedness
Not applicable.
C.   Reasons for the offer and use of proceeds
Not applicable.
D.   Risk Factors
Canon is one of the world's leading manufacturers of plain paper copying machines, digital
multifunction devices, laser beam printers, bubble jet printers, cameras, steppers and aligners.
Primarily because of the nature of the business areas and geographical areas in which Canon
operates and the highly competitive nature of the industries to which it belongs, Canon is exposed
to a variety of risks and uncertainties in carrying out its businesses, including, but not limited
to, the following:
Risks Related to Canon's Industries
Canon has invested and will continue to invest heavily in next-generation technologies. If the
market for these technologies does not develop as Canon expects or if its competitors produce these
or competing technologies in a more timely or effective manner, Canon's operating results could be
materially adversely affected.
Canon has made and will continue to make investments in next-generation technology research
and development initiatives. Canon's competitors may achieve research and development breakthroughs
in these technologies more quickly than Canon, or may achieve advances in competing technologies
that render products under development by Canon uncompetitive. In step with the continuous
evolution in technologies, Canon has increased the size of its investment in development and
manufacturing. If Canon's business strategies diverge from market needs, Canon may not recover some
or all of its investment, lose business opportunities, or both, which may materially adversely
affect Canon's operating results. While differentiation in technology and product development is an
important part of Canon's strategy, Canon must also accurately assess the demand for and perceived
market acceptance of new technologies and products that it develops. If Canon pursues technologies
or develops products that do not become commercially accepted, its operating results could be
adversely affected.
It is assumed that Canon will enter into the new business field by having next-generation
technology as Canon's corporate strategy. However, even if Canon enters into new field of business, there are risks that Canon may not establish a business model or may get involved in competition
with new competitors. If such risks arise, Canon's operating results will be adversely affected.
If Canon does not effectively manage transitions in its products and services, its operating
results may decline.
Many of the businesses in which Canon competes are characterized by rapid technological
advances in hardware performance, software functionality and product features, the frequent
introduction of new products, short product life cycles, and continual improvement in product price
characteristics relative to product performance. If Canon does not make an effective transition
from existing products and services to new offerings, its revenue and profits may decline. Among
the risks associated with the introduction of new products and services are delays in development
or manufacturing, low product marketability due to poor product quality, variations in
manufacturing costs, delays in customer purchases in anticipation of new introductions, difficulty
in predicting customer demand for new product offerings and difficulty in effective management of
inventory levels in line with anticipated demand. Canon's revenue and gross margin also may suffer
due to the timing of product or service introductions by its competitors. This risk is exacerbated
when a product has a short life cycle or a competitor introduces a new product just before Canon's
introduction of a similar product. Furthermore, sales of Canon's new products and services may
replace sales of, or result in discounting of, some of its current product offerings, sometimes
offsetting the benefits derived from the introduction of a successful new product or service. Canon
must also ensure that its new products are not duplicative or do not overlap with existing products
and operations. Given the competitive nature of Canon's businesses, if any of these risks
materialize, future demand for its products and services will be reduced and its results of
operations may decline.
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Table of Contents
Canon's businesses, especially the digital multifunction device and camera businesses in which
Canon operates, is highly competitive.
The recent trend of rapid digitalization has resulted in the entry of new competitors, such as
electronics manufacturers and other specialized companies which were not active during the analog
camera era. If the digital camera industry develops more rapidly than at the pace that Canon
anticipates, Canon may not be able to maintain its position as an industry leader in many of its
business categories. Although Canon believes that it has successfully kept pace with this trend
toward digitalization, its survival in this increasingly competitive environment will depend on our
investments in research and development, ability to cut costs and commitment to continuously
providing the market with attractive products offering high added-value.
In addition, the unexpected emergence of strong competitors through mergers and acquisitions
or the formation of business alliances may change the competitive environment of the businesses in
which Canon engages, thereby affecting Canon's future results of operations.
Because the semiconductor industry is highly cyclical, Canon may be adversely affected by any
downturn in the industry.
The semiconductor industry is characterized by up and down business cycles, the timing, length
and volatility of which are difficult to predict. Recurring periods of oversupply of integrated
circuits have at times led to significantly reduced demand for capital equipment, including the
steppers and aligners Canon produces. Despite this cyclicality, Canon must maintain significant
levels of research and development expenditures in order to maintain its competitive position.
Canon's business and operating results could be materially adversely affected by future downturns
in the semiconductor industry and related fluctuations in the demand for capital equipment in
general, and particularly by memory manufacturers.
In addition, liquid crystal display ( "LCD") panel manufacturers are facing severe
price-reduction of LCD panels as a result of intense competition of LCD televisions and LCD
monitors used in PCs. As a result, panel manufacturers may reduce equipment investment, which may
adversely affect Canon's business operations.
Downturns in the semiconductor industry have caused Canon's customers to change their
operational strategies, which in turn may affect Canon's business.
Many device manufacturers have changed their business models to focus on the design of
semiconductors, while consigning the production of semiconductors to lower-cost foundries. Canon
cannot accurately predict the future effect of these trends on its business. However, as research
and development, manufacturing and sales activities become increasingly globalized in response to
these trends, shifting particularly to emerging markets, unexpected global developments, such as
adverse regulatory or legal changes and unanticipated events, such as natural disasters, may
adversely affect Canon's business operations.
In addition, there are only approximately ten companies in the world which produces
large-sized LCD panels in the world. If Canon cannot keep up with the market trend of LCD panel
industries, including market reorganization, Canon may not be able to maintain its customer which
may materially adversely affect Canon's business operations.
The semiconductor equipment industry is characterized by rapid technological change. If Canon
does not constantly develop new products to keep pace with technological change and meet its
customers requirements, Canon may lose customers and its business may suffer.
Canon's steppers and mask aligners are affected by rapid technological change and can quickly
become obsolete. Canon believes its future success in the steppers and aligners business depends on its ability to continue to enhance its existing products
and develop new products using new and more advanced technologies. In particular, as semiconductor
pattern sizes continue to decrease, the demand for more technologically advanced steppers is likely
to increase. Although Canon will continue to offer cost effective products by managing
manufacturing costs through its technology, Canon's existing stepper and mask aligner products
could become obsolete sooner than anticipated because of faster than anticipated changes in one or
more of the technologies related to Canon's products or in the market demand for products based on
a particular technology. Any failure by Canon to develop the advanced technologies required by its
customers at progressively lower costs and to supply sufficient quantities to a worldwide customer
base could adversely affect Canon's net sales and profitability.
Growing diversification in recording media may adversely affect Canon's video camcorder
business.
As part of the overall digitization of the consumer electronics market, the video camera
market is successfully moving toward digitalization. At the same time, in the market that was once
dominated by MiniDV standard, new digital standards, such as DVD (Digital Versatile Drive), HDD
(Hard Disk Drive), SD (Secure Digital) memory card and high-resolution recording format such as
HDV, have appeared. If these competing standards gain wide acceptance in the market, sales of
Canon's products using mainly the MiniDV standard may decline.
In addition, Canon may be required to incur significant research and development expenditures
to develop new products that are compatible with such new standards. Such trends may have an
adverse affect on Canon's video camcorder business as well as its operating results.
Risks Related to Canon's Business
Canon derives a significant percentage of its revenues from Hewlett-Packard.
Canon depends on Hewlett-Packard for a significant part of its business. For fiscal 2005,
approximately 21% of Canon's net sales were to Hewlett-Packard. As a result, its business and
results of operations may be affected by the policies, business and results of operations of
Hewlett-Packard. Any decision by Hewlett-Packard management to limit or reduce the scope of its
relationship with Canon would adversely affect Canon's business and results of operations.
Canon depends on a limited number of suppliers for certain key components.
Canon relies on a limited number of outside vendors which meet Canon's strict criteria for
quality, efficiency and environmental friendliness for certain critical components used in its
products. In some cases, Canon may be forced to discontinue its production of some or all of its
products if certain vendors that supply key parts across Canon's product lines experience
unforeseen difficulties, or if such parts experience quality problems or are in short supply.
Canon's reliance on a limited number of suppliers involves several risks, including a potential
inability to obtain an adequate supply of required components, the risk of untimely delivery of
these subassemblies and components and the risk for a substantial increase in price of these
components to occur. If such risks arise, Canon's operating results will be adversely affected.
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Table of Contents
Although competition is increasing in the market for sales of supplies and services following
initial product placement, Canon maintains a s high market share in sales of such supplies. As a
result, Canon may be subject to antitrust-related suits, investigations or proceedings which may
adversely affect its operating results or reputation.
A portion of Canon's net sales consists of sales of supplies and the provision of services
occurring after the initial equipment placement. As these supplies and services have become more
commoditized, the number of competitors in these markets has increased. Canon's success in
maintaining these post-placement sales will depend on its ability to compete successfully with
these competitors, some of which may offer lower-priced products or services. Despite the increase
in competitors as described above, Canon currently possesses a high market share in the market for
supplies. Accordingly, Canon may be subject to suits, investigations or proceedings under relevant
antitrust laws and regulations. Any such suits, investigations or proceedings may lead to
substantial costs and have an adverse effect on Canon's operating results or reputation.
Recent increases in counterfeit Canon products may adversely affect Canon's brand image and
its operating results.
In recent years, Canon has experienced a worldwide increase in the emergence of counterfeit
Canon products. Such counterfeit products may diminish Canon's brand image, particularly if
purchasers of such products are unaware of their counterfeit status and attribute the counterfeit
products' poor product quality to Canon. Canon has been taking measures to halt the spread of
counterfeit products. However, there is no assurance that such measures will be successful, and the
continued production and sale of such products could negatively affect Canon's brand image as well
as its operating results.
Per unit production costs are highest when a new product is introduced, and if such
new products are not successful or if Canon fails to achieve cost reductions over time, Canon's
gross profits may be adversely affected.
The unit cost of Canon's products has historically been the highest when they are newly
introduced into production and have at times had a negative impact on its gross profit, operating
results and cash flow. Cost reductions and enhancements typically come over time through:
•
engineering improvements;
•
economies of scale;
•
improvements in manufacturing processes; and
•
improved serviceability of products.
Initial shipments of Canon's new products adversely affect its profit or cash flow, and if
sales of such new products are not successful, Canon may be unable thereafter to improve its gross
profit, operating results and cash flow.
Cyclical patterns in sales of Canon's products make planning and inventory management
difficult and future financial results less predictable.
Canon generally experiences seasonal trends in the sale of its consumer- oriented products,
which results in sales fluctuations. Accordingly, it is difficult to predict near-term demand which
as a result places pressure on Canon's inventory management and logistics systems. If predicted
demand is substantially greater than actual orders, there will be excess inventory, thereby putting
downward pressure on selling prices and reducing Canon's revenue. Alternatively, if orders
substantially exceed predicted demand, Canon's ability to fulfill orders may be limited, which
could adversely affect net sales and increase the risk of unanticipated variations in its results
of operation. Many of the factors that create and affect seasonal trends are beyond Canon's
control.
Canon's business may be subject to changes in sales environment.
In certain geographic areas, particularly in Europe and the United States, a substantial
portion of market share is concentrated in a relatively small number of large distributors. Canon's
sales of products to these distributors constitute a significant percentage of Canon's overall
sales. As a result, any disruptions in its relationships with these large distributors in a
specific sales territory could adversely affect Canon's ability to meet its sales targets. Any
increase in the level of market share concentrated in these large distributors could result in
Canon losing its pricing power and adversely affect its profits. In addition, the rapid
proliferation of Internet-based businesses may render conventional distribution channels obsolete.
These and other changes in Canon's sales environment could adversely affect Canon's results of
operations.
Canon is subject to financial and reputational risks due to product quality and liability
issues.
Although Canon has been working to minimize risks that may arise from product quality and
liability issues, there can be no assurance that Canon will be able to eliminate or mitigate
occurrences of these issues and consequent damages. If such factors adversely affect Canon's
operating activities, generate expenses such as those for product recalls, service and
compensation, or hurt its brand image, its operating results or reputation for quality products
may be adversely affected.
Canon's success depends on the value of its brand name, and if the value of the brand name
were to diminish, operating results and prospects would be adversely affected.
Canon's success in its markets depends in part on Canon's brand name and its value. In
addition, as a manufacturer and distributor of consumer products, Canon's operating results are
susceptible to adverse publicity regarding the quality of its products. There can be no assurance
that such adverse publicity will not occur or that such claims will not be made in the future.
Furthermore, Canon cannot predict the impact of such adverse publicity on its business and results
of operations.
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Table of Contents
A substantial portion of Canon's business activity is conducted outside Japan, exposing Canon
to the risks of international operations.
A substantial portion of Canon's business activity is conducted outside Japan, including in
developing and emerging markets in Asia. There are a number of risks inherent in doing business in
those markets, including the following:
•
less developed technological infrastructure, which can affect production or other activities or result in lower customer acceptance of Canon's services;
•
difficulties in recruiting and retaining personnel;
•
potentially adverse tax consequences;
•
longer payment cycles;
•
unfavorable political or economic factors; and
•
unexpected legal or regulatory changes.
Canon's inability to manage successfully the risks inherent in its international activities
could adversely affect its business and operating results.
In order to produce Canon's products competitively and to reduce costs, Canon has established
new production facilities in China. Canon has more than ten sales office which support its sales
activity in China. However, with China's entry into the WTO, conditions within China are continuing
to change. For example, unexpected events, including political or legal change, labor shortage or
strikes, increased personnel costs or changes in economic conditions, may occur. In
particular, a large revaluation of the yuan, or a sudden change in the tax system or other
regulatory regimes of a significant magnitude could adversely affect Canon's overall performance.
In addition, the spread of an epidemic disease, such as severe acute respiratory syndrome
(SARS) or the avian flu, in China or elsewhere in Asia could have a negative effect on Canon's
business activity. Canon has previously imposed travel restrictions to and from, certain countries
affected by SARS, and similar medical crises in the future may disrupt manufacturing processes and
markets for Canon's products. Given the importance of Canon's Asian sales, production facilities
and supply relationships, especially in China, Canon's business may be more exposed to this risk
than the global economy generally.
Canon may unintentionally infringe international trade laws and regulations, and any such
infringement may lead to an adverse effect on its business. The extent of the effect on Canon's
business will depend upon the nature of the infringement and the severity of fines or other
sanctions that might be imposed upon Canon. A major infringement could result in the temporary
suspension of Canon's trading rights in one or more jurisdictions. In addition to any sanctions
prescribed by law, adverse publicity regarding an alleged infringement of trade laws and
regulations by Canon may also have a negative effect on the Canon brand and image.
All of the above factors regarding international operations could have an adverse impact on
Canon's business results.
Canon depends on efficient logistics services to distribute its products worldwide.
Canon depends on efficient logistics services to distribute its products worldwide. If
problems arise with Canon's computerized logistics system, or regional disputes or labor disputes,
such as a dockworker's strike, occur, it could lead to a disruption of Canon's operations and
result not only in increased logistical costs, but also in a loss of sales opportunities due to
delays in delivery. Also, because demand for Canon's consumer products can fluctuate throughout the
year, the failure to adjust bookings for vessels and the preparation of warehouse space to reflect
such fluctuations could result in either the loss of sales opportunities or the increase of
unnecessary costs.
In addition, the increasingly higher levels of precision required of semiconductor production
equipment like steppers or mask aligners and the resulting increase in the value of this equipment
in recent years have resulted in a concurrent increase in the need for sensitive handling and
transportation of these products. Due to their precision nature, even a very trivial shock to these
products during the handling and transportation process could result in loss on the entire product.
If unforeseen accidents during the handling and transportation process render a significant portion
of Canon's higher-end precision products unmarketable, Canon may not be able to fully recover its
investment in the research, development and production of these precision products.
The rise in crude oil prices has become a recurring event, due primarily to the inflow of
speculative funds into the global markets and the increasing consumption in China. As a result of
this rise in oil prices, the cost of airfreight has increased in the form of a fuel surcharge. Such
changes in the sales environment in which Canon operates could adversely affect Canon's results of
operations.
Canon is engaging in the reduction of carbon dioxide emissions by implementing such measures
as a new transportation system, including an efficient new rail container system. A failure by
Canon to meet its targets may have a negative effect on Canon's brand and image and its business.
Economic trends in Canon's major markets may adversely affect its results of operations net
sales.
Economic downturns and declines in consumption in Canon's major markets, including Japan, the
United States and Europe, may affect the levels of both corporate and consumer sales. Purchases of
Canon's consumer products, such as cameras and printers, are to a very significant degree
discretionary. A decline in the level of consumption caused by the weakening of general economic
conditions could adversely affect Canon's results of operations.
Canon's operating results are also affected by the level of business activity of its
customers, which in turn is affected by the level of economic activity in the industries and
markets that they serve. A decline in the level of business activity of Canon's customers caused by
the weakening of the global economy could adversely affect Canon's results of operations.
6
Table of Contents
Risks Related to Environmental Issues
Canon's business is subject to environmental laws and regulations.
Canon is subject to certain Japanese and foreign environmental requirements in areas such as
energy resource conservation, reduction of hazardous substances, collection and recycling of
products, clean air, water protection and waste disposal. Canon believes that it has taken adequate
precautions to comply with these regulations in the course of its ordinary business operations.
Furthermore, Canon does not believe that any environmental laws or regulations currently in effect
will have a material adverse effect on its operating results. However, Canon cannot predict whether
any pending or future legislation will be adopted or what effect such legislation would have on it.
In some cases, mainly in the European Union, such as with the Directive on the Restriction of
the Use of Certain Hazardous Substances in Electrical and Electronic Equipment or the Directive
establishing a framework for the setting of EcoDesign requirements for Energy-using Products,
detailed implementation standards have not yet been determined. Canon intends to implement such
standards as they are determined and adopted. If Canon's measures do not meet such
standards when they are adopted, however, Canon may be required to take further action and incur
additional costs to comply with these regulations.
Environmental clean-up and remediation costs relating to Canon's properties and associated
litigation could decrease Canon's net cash flow, adversely affect its results of operations and
impair its financial condition.
Canon is subject to liability for the investigation and clean-up of environmental
contamination at each of the properties that it owns or operates, at certain properties Canon
formerly owned or operated and at off-site locations where Canon arranged for the disposal of
hazardous substances. If Canon were to be held responsible for damages in any future litigation or
proceedings, such costs may not be covered by insurance and may be material.
In addition, Canon may face liability for alleged personal injury or property damage due to
exposure to chemicals or other hazardous substances at or from its facilities. Canon may also face
liability for personal injury, property damage, natural resource damage or for clean-up costs for
the alleged migration of contamination or other hazardous substances from its facilities. A
significant increase in the number or success of these claims and costs could adversely affect
Canon's results of operations or financial condition.
Risks Related to Intellectual Property
Canon may be subject to intellectual property litigation and infringement claims, which could
cause it to incur significant expenses or prevent it from selling its products.
Because of the emphasis on product innovation in the markets for Canon's products, many of
which are subject to frequent technological innovations, patents and other intellectual property
are an important competitive factor. Canon relies primarily on technology it has developed, and
Canon seeks to protect such technology through a combination of patents, trademarks and other
intellectual property rights.
Canon faces the risks that:
•
competitors will be able to develop similar technology independently;
•
Canon's pending patent applications may not be issued;
•
the steps Canon takes to prevent misappropriation or infringement of its intellectual property may not be successful; and
•
intellectual property laws may not adequately protect Canon's intellectual property, particularly in some emerging markets.
In case Canon is not aware of actual or potential infringement of, or adverse claim to, its
rights in such technologies, any interference in Canon's rights to use such technologies could
adversely affect its operating results.
In addition, Canon may need to litigate in order to enforce its patents, copyrights or other
intellectual property rights, to protect its trade secrets, to determine the validity and scope of
the proprietary rights of others or to defend against claims of infringement, which can be
expensive and time-consuming. In the event any government agency or third party were adjudicated to
have a valid claim against Canon, Canon could be required to:
•
refrain from selling the affected product in certain markets;
•
make royalty payments or pay monetary damages;
•
seek to develop non-infringing technologies, which may not be feasible; or
•
seek to acquire licenses to the infringed technology, which may not be available on commercially reasonable terms, if at all.
Canon also licenses its patents to third parties in exchange for payment or cross-licensing.
The terms and conditions of such licensing or changes in the conditions for renewals of such
licenses could affect Canon's business.
Canon's businesses, company image and result of operations could be adversely affected by any
of these developments.
Disputes involving payment of remuneration for employee inventions may materially affect
Canon's brand image as well as its business.
Canon may face disputes involving payment of remuneration given to employee inventions for
which the rights have been succeeded by Canon. This risk is particularly relevant in countries such
as Japan and Germany, where patent laws require companies to pay remuneration to employees for the
succession of the employee's invention to the company. Canon maintains company rules on and an
evaluation system for employee inventions. Canon believes it has been making adequate payments to
employees for assignment of inventions based on these rules and a fair and objective succession of
amounts to be paid. There can be no assurance, however, that disputes will not arise with respect
to the amount of payments to employees.
7
Table of Contents
Other Risks
Canon depends on the attraction and retention of highly qualified professionals.
Canon's future operating results depend in significant part upon the continued contributions
of its employees. In addition, Canon's future operating results depend in part on its ability to
attract, train and retain other qualified personnel in development, production, sales and
management for Canon's operations. The competition for these human resources in the high-tech
industries in which Canon competes has been increasingly intense in recent years. Moreover, due to
the accelerating pace of technological change, the importance of training new personnel in a timely
manner to meet product research and development requirements will increase. A failure by Canon to
recruit and train qualified personnel or the loss of key employees could adversely affect Canon's
business, and results of operations.
Maintaining a high level of expertise in Canon's manufacturing technology is critical to
Cannon's business. However, it is difficult to secure the expertise required for a special skills
area, such as lens processing, in a short time period. While Canon is currently undertaking a
series of planning in order to obtain the expertise needed for each skills area, Canon cannot
guarantee that such expertise will be acquired in a timely manner and retained, which may adversely
affect Canon's business and results of operations.
Canon's physical facilities, information systems and information security systems are
subject to damage as a result of disasters, outages or similar events.
Canon's headquarters functions, its information systems and its research and development
centers are located in or near Tokyo, Japan, where the possibility of disaster or damage from
earthquakes is generally higher than in other parts of the world. In addition, Canon's facilities
or offices, including those for research and development, material procurement, manufacturing,
logistics, sales, and services are located throughout the world and subject to the possibility of
disaster or outage or similar disruption as a result of any of a number of events, including
natural disasters, computer viruses and terrorist attacks. Although Canon is working to establish
appropriate backup structures for its facilities and information systems, there is no assurance
that Canon will be able to completely prevent or mitigate the effect of events or developments such
as the aforementioned disasters, leakage of harmful substances, shutdowns of information systems,
and leakage, falsification, and disappearances of internal databases. Although Canon has
implemented backup plans to permit the production of products at multiple production facilities,
such plans do not cover all product models. In addition, such backup arrangements may not be
adequate to maintain production quantity levels. Such factors may adversely affect Canon's
operating activities, generate expenses relating to physical or personal damage, or hurt Canon's
brand image, and its operating results may be adversely affected.
Canon's operating and financing activities expose Canon to foreign currency exchange and
interest rate risks that may adversely affect its revenues and profitability.
Canon is exposed to the risks of foreign currency exchange rate fluctuations. Canon's
consolidated financial statements, which are presented in Japanese yen, are affected by foreign
exchange rate fluctuations. These fluctuations can affect the yen value of Canon's equity
investments denominated in foreign currencies and monetary assets and liabilities arising from
business transactions in foreign currencies. They can also affect the costs and sales proceeds of
products that are denominated in foreign currencies. In addition, as a result of translating
foreign currency financial statements of Canon's foreign subsidiaries into Japanese yen, its
reporting currency, assets and liabilities, and revenues and expenses will fluctuate. Canon is also
exposed to risk of interest rate fluctuations, which may affect the value of Canon's financial
assets and liabilities, in particular, long-term debt.
The cooperation and alliances with, and strategic investments in, third parties undertaken by
Canon may not produce successful results.
Canon carries out many activities with other companies in the form of alliances, joint
ventures, and strategic investments. These activities are important for Canon's technological
development process. However, weak business trends or disappointing performance by partners may
adversely affect the success of these activities. In addition, the success of these activities may
be adversely affected by the inability of Canon and its partners to successfully define and reach
common objectives. An unexpected cancellation of a major business alliance may disrupt Canon's
overall business plans and may also result in a delayed return-on-investment.
Canon can be adversely affected by fluctuations in the stock and bond markets.
Canon's assets include investments in publicly traded securities. As a result, Canon's
operating results and general financial position may be affected by fluctuations in the stock and
bond markets. In addition, if valuations of investment assets decrease due to conditions in, for
example, stock or bond markets, additional funding and accruals with respect to Canon's pension and
other obligations may be required, and such funding and accruals may adversely affect Canon's
operating results and consolidated financial condition.
Confidential information may be inadvertently disclosed which could lead to damage claims or
harm Canon's reputation, and may have an adverse effect upon Canon' s business.
In connection with certain projects, Canon may receive confidential or sensitive information
(such as personal information) from its customers relating to these customers or to other parties. In addition, Canon uses computer systems and electronic
data in managing information relating to its employees. Although Canon makes every effort to keep
this information confidential through company procedures designed to prevent accidental release of
confidential or sensitive information, such information may be inadvertently disclosed without
Canon's knowledge. If this occurs, Canon may be subject to claims for damages from the parties or
the employees affected, suffer harm to its reputation or be subject to liabilities and/or penalties
under applicable statutes.
Inadvertent disclosure of secret information regarding new technology, as well as market and
customer information, would also have a material adverse effect upon Canon's business.
8
Table of Contents
Item 4.
Information on the Company
A.
History and development of the Company
Canon Inc. is a joint stock corporation (kabushiki kaisha) formed under the Japanese
Commercial Code. Its principal place of business is at 30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo
146-8501, Japan. The telephone number is +81-3-3758-2111.
The Company was incorporated under the laws of Japan on August 10, 1937 to produce and sell
Japan's first focal plane shutter 35mm still camera, which was developed by its predecessor
company, Precision Optical Research Laboratories, which was organized in 1933.
In the late 1950s, Canon entered the business machines field utilizing technology obtained
through the development of photographic and optical products. With the successful introduction of electronic calculators in 1964, Canon continued to
expand its operations to include plain paper copying machines, faxes, laser beam printers, bubble jet printers, computers, video camcorders and digital
cameras.
The following are important events in the development of Canon's business in recent years.
•
In 2000, the Canon Inc. Optics R&D Center, a research and development, or R&D facility
for optical technology, was established in Tochigi, Japan.
•
In 2000, Canon Inc. changed the listing of its American Depository Receipts (ADRs) to
the New York Stock Exchange (NYSE) from the Nasdaq National Markets.
•
In 2001, Canon Vietnam Co., Ltd. was established in Hanoi, Vietnam as a production site
for bubble jet printers.
•
In 2001, Canon Zhongshan Business Machines Co., Ltd. was established in Zhongshan, China
as a production site for laser beam printers.
•
In 2001, Canon (Suzhou) Inc. was established in Suzhou, China as a production site for
digital copying machines and digital multifunction devices.
•
In January 2003, Canon Aptex Inc. and Copyer Co., Ltd., two of Canon Inc.'s
manufacturing subsidiaries in Japan, merged to become Canon Finetech Inc. The merger was
conducted with the aim of concentrating and further strengthening the core competencies of
the two merged companies in office equipment-related technologies.
•
In April 2003, Fukushima Canon Inc. was established as a wholly-owned subsidiary through
the spin-off of Fukushima Plant, with the aim of establishing a high value-added
manufacturing company equipped with product-launching capability.
•
In April 2003, Canon N.T.C.'s marketing operations were spun off and merged with
Canon System & Support Inc., and its real estate operations were spun off into Canon
Facility Management, Inc. Following the corporate spin-offs, Canon N.T.C.'s operations
focuses on development and manufacturing.
•
In January, 2004, Canon Precision Inc., or Canon Precision, a wholly-owned subsidiary
of Canon Inc., merged with Hirosaki Precision, Inc., or Hirosaki Precision, a wholly-owned
subsidiary of Canon Precision. Hirosaki Precision was merged into Canon Precision, the
surviving company. Canon Precision targets the improved efficiency and specialization of
business operations. Since both Canon Precision and Hirosaki Precision were consolidated
subsidiaries of Canon Inc., the merger has no impact on Canon's current or future business
results.
•
On October 15, 2004, the Company entered into an agreement with Canon Sales Co., Inc. and
Canotec Co., Inc., or Canotec, joint equity shareholders of Niigata Canotec Co., Inc., or
Niigata Canotec, to acquire all outstanding shares of Niigata Canotec. Therefore, on
January 1, 2005, Niigata Canotec became a wholly-owned subsidiary of the Company and
changed its name to Canon Imaging System Technologies Inc. By making Canon Imaging System
Technologies, Inc. a wholly-owned subsidiary of the Company, Canon aims to raise the level
of its technical capacity and improve development efficiency by enabling closer
coordination.
•
On January 1, 2005, Canotec and FastNet, Inc. merged, and the merged entity changed
its name to Canon Network Communications, Inc. The purpose of the merger was to increase
management efficiency by consolidating the Canon Group's network and Internet service
operations. Canon Network Communications, Inc. aims to strengthen Information Technology
Management Services, dealing with all stages from the establishment of comprehensive
network systems to their operation and management.
•
On September 30, 2005, Canon acquired all of the issued and outstanding shares of
ANELVA Corporation, which possesses advanced vacuum technology, and made it into a
subsidiary. ANELVA Corporation's corporate name was changed to Canon ANELVA Corporation as
of October 1, 2005. By making Canon ANELVA Corporation a subsidiary of the Company, Canon
aims to promote the in-house production of manufacturing equipment which is indispensable
to differentiate Canon products from the competitions in various fields, including Canon's
new display business.
•
On October 19, 2005, Canon acquired the share of NEC Machinery Corporation (listed on
the Second Section of the Osaka Securities Exchange Co.,Ltd.), which possesses advanced
automation technologies, through tender offer and made it into a subsidiary. NEC Machinery
Corporation's corporate name was changed to Canon Machinery Inc. as of December 17, 2005.
By making Canon Machinery Inc. a subsidiary of the Company, Canon aims to make further
advance in its production reform activities, including the automation of production
processes for Canon products.
In fiscal 2005, 2004 and 2003, Canon's capital expenditures were Yen 383,784 million, Yen
318,730 million and Yen 210,038 million, respectively. In fiscal 2005, capital expenditures were
mainly used to expand production capabilities in both domestic and overseas regions, and to bolster
the Company's R&D-related infrastructure. In addition, Canon has been continually investing in tools and
dies for business machines, in which the amount invested is generally the same each year.
9
Table of Contents
For fiscal 2006, Canon projects its capital expenditures will be approximately Yen 465,000
million. This amount is expected to be spent for investments in new production plants and new
facilities of Canon. Canon anticipates that the funds needed for these capital expenditures will be
generated internally through operations.
B.
Business overview
Canon is one of the world's leading manufacturers of plain paper copying machines, digital
multifunction devices, or MFDs, laser beam printers, bubble jet printers, cameras and steppers.
Canon sells its products principally under the Canon brand name and through sales
subsidiaries. Each of these subsidiaries is responsible for marketing and distribution to retail
dealers in an assigned territory. Approximately 74% of consolidated net sales in fiscal 2005 were
generated outside Japan; approximately 30% in the Americas, 32% in Europe and 12% in other areas
including Asia.
Canon's strategy is to develop innovative, high value-added products which incorporate
advanced technologies.
Canon's research and development activities range from basic research to product-oriented
research directed at keeping and increasing the technological leadership of Canon's products in the
market.
Canon manufactures the majority of its products in Japan, but in an effort to reduce currency
exchange risks and production cost, Canon has increased overseas production and the use of local
parts. Canon has manufacturing subsidiaries in countries and regions such as the United States,
Germany, France, Taiwan, China, Malaysia, Thailand and Vietnam.
As a concerned member of the world community, Canon emphasizes recycling, and has increased
its use of clean energy sources and cleaner manufacturing processes. Canon has also adopted
programs to collect and recycle used cartridges and to refurbish used copy machines. In addition,
Canon has virtually removed all environmentally unfriendly chemicals from its manufacturing
processes.
Products
Canon's products are divided into the following three product groups: business machines,
cameras, and optical and other products.
-
Business machines -
The business machines product group is divided into three sub-groups consisting of office
imaging products, computer peripherals and business information products.
Office imaging products
Canon manufactures, markets and services a wide range of office network digital MFDs, color
network digital MFD's, office copying machines, personal-use copying machines and full-color
copying machines.
The office-use market is subject to rapid change, and customer preferences have been shifting
from copying machines to digital MFDs, as well as from monochrome to color products. To respond to
these trends, Canon has been strengthening its lineup of digital MFDs in the imageRUNNER (iR)
series, which have versatile functions, such as copying, printing, scanning, faxing and
data-sharing functions on the Internet and intranets. Canon is also marketing diverse expansion
modules, software and business solutions to increase customer value. For the development of MFDs,
Canon makes effective use of a wide range of technologies from the fields of optics, mechatronics,
electrophotography, chemistry and image processing. Canon has developed the high-performance image
processing chip the "New color iR controller" and the expandable, functional platform "MEAP" The
controller provides easy integration with customers' IT environments together with speedy,
high-quality image processing. This boosts office productivity, thereby garnering acclaim from
business customers.
In 2005, Sales of color office imaging products continued to grow rapidly as the office color
market expanded and sales of monochrome digital devices were stable. Canon has expanded its color
office imaging products lineups by introducing the iRC3170/2570 and iRC3220/2620 series worldwide
to further increase color MFD sales. Canon has also introduced new monochrome MFD models to
strengthen its industry leading monochrome MFD product lineup.
Canon has a powerful line of full-color copying machines and color digital MFDs for users
ranging from professional graphic designers to business offices. The trend in printing industry is
gradually moving away from large-lot printing using expensive machinery to small-lot printing on
demand and personalized printing. Canon's high-end MFDs and color digital MFDs can be applied to
the print on demand market. In addition, Canon aims to respond to the growing demand for color
imaging for business needs with products using its renowned S Toner, featuring spherical particles
and a microscopic wax-based structure, and its oil-less fixing system.
Canon has a leading market share in monochrome MFDs and copying machines including machines
for personal use. While the color shift is in progress, especially in Japan, the demand for
monochrome machines is stable accompanying with the expansion of their multifunction capabilities
and software development.
With the evolution of digital technology and communication, MFDs that enable seamless
conversion between paper documents and electronic documents have also evolved from being
input-output devices to a sophisticated information systems. To deliver solutions that meet the
diversifying needs of customers in various industries and niche, Canon has brought to market a full
offering of MEAP-enabled office MFP lines both in monochrome and color as well as software
products.
The office imaging products category also includes the related sales of paper and chemicals,
service charges and sales of replacement parts.
10
Table of Contents
Computer peripherals
Computer
peripherals include laser beam printers ("LBP"), inkjet printers and scanners.
Developed and fostered by Canon, laser beam printers are standard output peripherals for
offices. Canon's laser beam printers are relatively small in size and have high-quality printing
capabilities attributable to Canon's expertise in laser beam printing and plain paper copying
technologies. Canon's adoption of a user-replaceable toner cartridge system containing optical
components makes its laser beam printers easy to maintain. Most of Canon's laser beam printer sales
are on an OEM basis. Canon also distributes Canon brand laser beam printers in Japan, Europe and
Oceania.
As for the monochrome laser beam printer, Canon has started to produce and sell sub-L products
that belong to the lower segment of low-end products in Southern China. The unexpected expansion of
production and selling has impelled Canon to the expansion of production in laser beam printers
business.
As the inventor of bubble jet printing technology, Canon believes it continues to provide
customers with the best performance the technology has to offer. Canon provides high-performance
and high value added models both in single-function printers and multi function printers. In
response to intense competition in the inkjet printer segment, Canon has established a line-up of
multifunction printers from flagship to entry models and, in 2005, launched several new models of
single-function printers. All new model feature a print head called Canon Full-photolithography
Inkjet Nozzle Engineering (FINE), which boosts print speed and image quality up to 9600 x 2400 dpi
with microscopic droplets as small as one picoliter. In addition to high-quality images, Canon
PIXMA branded photo printers offer advanced paper handling, such as dual paper path and two-sided
duplex printing, and the new ChromaLife100 system for long-lasting photo prints. With these
advanced printer line-ups, Canon has expanded its sales volume of both single-function printers and
multi-function printers. Canon also expects the consumables business will expand accordingly.
Canon markets a wide variety of scanners for a spectrum of user needs, including image
scanners in the CanoScan LiDE series using Contact Image Sensor (CIS), and scanners with
Charge-Coupled Devices (CCD) for high resolution in the CanoScan series. CIS is a close-contact
method that allows a significant reduction in scanner weight and size. Canon has deployed its
expertise to develop space-saving, energy-efficient scanners, as well as easy PC connection via
universal serial bus interface. Although the scanner market has continued to shrink and
shift to multi-function printers, Canon has successfully introduced new scanner models to attain a
high market share.
Business information products
Business information products primarily consist of micrographic equipment, personal computers,
calculators, document scanners and work stations.
With the movement toward digitalization, the need to scan documents into text data or image
data is expanding. Canon's document scanners rapidly and efficiently digitize large volumes of
information on paper. Canon offers a wide range of scanner models, including color capable compact
sheet-fed types and a flatbed model suitable for book-type documents. Canon also offers a hybrid
model that can create microfilm records while digitizing the information. Canon's diverse lineup
seeks to meet increased demands for digitizing office documents to share across Internet or
intranet platforms or to capture data from forms with optical character recognition.
Canon's calculator operations, from development to production and marketing, are centered in
Hong Kong. Canon's tradition of technological innovation has been inherited by its personal
information products, from calculators with printers to electronic dictionaries. Canon continues to
develop distinct, appealing personal information products that reflect trends and demand.
The work stations and personal computers sold by Canon are manufactured by third parties under
the manufacturers' own brand names.
- Cameras-
Canon manufactures and markets digital cameras and film cameras. Canon also manufactures and
markets digital video camcorders, lenses, and various camera accessories.
DIGIC II, an improved and upgraded new image processor, is the distinguishing feature of
Canon's digital imaging equipment, including digital compact cameras, digital SLR cameras, and
Compact Photo Printers. The DIGIC II has enhanced capabilities for high-quality image reproduction,
high-speed data processing, and high quality movie image processing.
In addition to aiming for the best possible image quality throughout its product lineup, Canon
offers digital compact cameras that are easy to use with highly sophisticated product design. The
compact digital camera market continued to grow in 2005 over 2004. Canon increased sales of compact
digital cameras through the introduction of 13 new compact digital camera models in 2005. In 2005,
new products, such as the Digital Elph SD400 (IXY 55 in Japan) and PowerShot A520/A510, were
well-received in the market worldwide, and Canon increased its market shares and remained a leader
in sales of compact digital cameras.
In the Compact Photo Printer segment Canon has shown significant leadership in this market.
Although the majority of the compact photo printer purchasers are considered "early adopters", as
market growth doubled in 2005, and retailers are now realizing the importance of this new business
segment. Canon introduced 4 new compact photo printers under the series name Selphy in 2005. Canon
has been able to leverage the brand recognition of its cameras to attract new customers for its
compact photo printers. In addition, Canon is starting to realize profits from sales of
consumables, such as paper and ink cartridges related to compact photo printers.
The digital SLR market continues to expand. Canon introduced three new models of digital SLRs
in 2005. Canon produces its own Complementary Metal Oxide Semiconductor (CMOS) imaging sensors,
and each of the new models of digital SLRs were equipped with a different CMOS imaging sensor
depending on the requirement of each camera, such as lens-compatibility, image quality, shooting
speed, and affordability. Canon's digital SLRs have been widely accepted by professional
photographers and entry-level users alike.
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Table of Contents
In response to the strong increase in unit sales of digital cameras, Canon expanded its
internet-based customer support service system in order to strengthen customer services.
Although the conventional film cameras continues to decline, Canon intends to maintain its
firm commitment to lead the film camera business, while closely monitoring the market trends.
In the camera lens segment, technological developments, including diffractive optical
elements, image stabilizers and ultrasonic motors, have helped Canon to maintain a technical lead
over other makers. Canon offers over 50 lenses in the EF series. These high-quality,
high-performance lenses provide outstanding performance with digital cameras as well as
silver-halide cameras, greatly contributing to Canon's sales. The market for interchangeable
lenses, which are used for SLR cameras, has grown and aggregate sales of the interchangeable lens
have increased every year for the past three years. In 2005, Canon launched a total of five new
interchangeable lens models to the market, three of these were launched in the first half of 2005
and designed especially for digital SLR cameras. Demand for digital SLR cameras has recently
increased significantly. In response to this trend, Canon intends to expand its sales and market
share by introducing interchangeable lenses especially designed for digital SLR cameras, the market
of which Canon expects to expand.
Canon also provides full line-up of digital video camcorders from versatile, compact and
stylish models to its flagship models for professionals. Canon's digital video camcorders
incorporate the same optical technologies and digital signal processing technology as its
world-renowned cameras, and come equipped with its one-chip digital imaging processor (DIGIC DV) to
ensure high image quality for both video and still images. Canon's digital video camcorders are
favored by many users for its optical performance, and red-green-blue primary color filters. The
adoption of megapixel CCD, secure digital (SD) memory cards and universal
serial bus (USB) connectivity offers a wealth of possibilities for the creation and management of
still images, as well as video.
The digital camcorder market continues to diversify, and, in 2005, Canon offered products for
two new segments of the digital camcorder market in order to maintain its market position in that
diversifying market. Until 2004, Canon was able to expand its market position by offering a full
line-up of MiniDV camcorders. In the autumn of 2005, Canon began offering camcorders using DVD and
camcorders with HD picture quality in addition to a full line-up of conventional MiniDV products.
Canon's first DVD camcorders, the DC20/DC10, were launched in September 2005, and Canon's first HDV
camcorder, XL H1, was launched in November 2005.
Quality and performance such as high resolution, high brightness, and greater detail or
sharpness are the key competitive factors in the market for projectors. At the end of fiscal 2004,
Canon launched its independently developed, SXGA+ resolution projector SX50 that is equipped with
reflective liquid crystals on silicon or LCOS technology. The SX50 features Canon's proprietary
optical system called AISYS to achieve significant improvements in brightness, size, and a price,
as is well accepted in the high resolution projector market. Canon intends to introduce
differentiated products as new trends in the market emerge.
-
Optical
and other products-
Canon's optical and other products includes semiconductor production equipment, medical
equipment and electronic components.
Semiconductor production equipment includes steppers and mask aligners. Steppers are used to
expose circuits on silicon substrates. Canon has commercialized Krypton Fluoride excimer-laser
steppers, Argon Fluoride excimer-laser steppers and i-line steppers. At the top of its class, the
new Argon Fluoride excimer-laser scanning stepper the FPA-6000AS4 makes possible top-level
throughput rates of over 92 wafers per hour
(122 shots / wafer) for 300 mm wafers. In fiscal 2005,
Canon introduced the FPA-6000ES6a, as its latest 300 mm-compatible lithography tool. The Canon
FPA-6000ES6a is a Krypton Fluoride scanning stepper enabling top-level throughput rates of over 100
wafers per hour (122 shots / wafer). As a result of relatively weak investment by the semiconductor
manufacturers in 2005, Canon's stepper sales shrinked but unit base market share increased slightly
compared with prior year. Canon, together with nine other Japanese semiconductor-industry
companies, formed the Extreme Ultraviolet Lithography System Development Association. The
consortium aims to develop key technology for next-generation lithography.
Mask aligners are used to produce liquid crystal displays, or LCDs, and Canon's model for
large-sized LCD substrates are sold particularly well in line with increased demand for large flat
panels for PC display and LCD televisions.
Canon believes that, based on global units, it is the world leader in television broadcasting
lenses, which are used to capture images from sports and news events, concerts and studio
broadcasts. In fiscal 2005, the market for television broadcasting lenses continued to recover from
the slump after 9/11, as a result of continued economic recovery and
an ongoing global trend to
introduce digital broadcasting equipment. In fiscal2005, Canon launched 7 new lens models primarily
for television broadcasting digital cameras and maintained its position as the market leader for
television broadcasting lenses.
Medical equipment sold by Canon includes X-ray cameras, retinal cameras, autofractmeters and
image-processing equipments for computerized diagnostic systems. Canon's pioneering digital
radiography system takes X-ray photography and medical diagnosis into the digital age.
Other products sold by Canon include electronic components, such as magnetic heads for audio
and video tape recorders and micro-motors for printers and other components, which are sold
primarily to equipment manufacturers. Canon has also been developing a cost efficient solar-power
system that incorporates amorphous silicon technology which is used in Canon's high-end monochrome
copying machines.
12
Table of Contents
Marketing and distribution
Canon sells its products primarily through subsidiaries with responsibility for specific
geographic areas. Each subsidiary is responsible for its own market research and for determining
its sales channels, advertising and promotional activities.
In Japan, Canon sells its products primarily through Canon Sales Co., Inc., mainly to dealers
and retail outlets.
In the Americas, Canon sells its products primarily through Canon U.S.A., Inc., Canon Canada,
Inc. and Canon Latin America, Inc., mainly to dealers and retail outlets.
In Europe, Canon sells its products primarily through Canon Europa N.V., which sells primarily
through subsidiaries or independent distributors to dealers and retail outlets in each locality. In
addition, copying machines are sold directly to end-users by Canon (U.K.) Ltd. in the United
Kingdom, and by Canon France S.A.S. in France.
In Southeast Asia and Oceania, Canon sells its products through subsidiaries located in those
areas. In addition, copying machines are sold directly to end-users by Canon Australia Pty. Ltd. in
Australia.
Canon also sells laser beam printers on an OEM basis to Hewlett-Packard
Company. Hewlett-Packard Company resells these printers under the "HP LaserJet Printers" name.
During fiscal 2005, such sales constituted approximately 21% of Canon's consolidated net sales, as
compared to 21% in the previous fiscal year.
Canon continues to enhance its distribution system by promoting continuing education of its
sales personnel and improving inventory management and business planning through the weekly
analysis of Canon's sales data.
Service
In Japan and overseas, product service is provided in part by independent retail outlets and
designated service centers that receive technical training assistance from Canon. Canon also
services its products directly.
Most of Canon's business machines carry warranties of varying terms depending upon the model
and the country of sale. Cameras and camera accessories carry a one-year warranty based on normal
use.
Canon services its copying machines and supplies replacement drums, parts, toner and paper. In
Japan, most customers enter into a maintenance service contract under which Canon provides
maintenance services, replacement drums and parts in return for a per-copy charge. Copying machines
which are not covered by a service contract may be serviced from time to time by Canon or local
dealers for a fee.
13
Table of Contents
NET SALES BY PRODUCT GROUP
Years
ended December 31
2005
change
2004
change
2003
(Millions of yen except percentage data)
Business machines:
Office imaging products
¥
1,153,240
2.9
%
¥
1,120,972
3.6
%
¥
1,081,995
Computer peripherals
1,244,906
8.3
1,149,914
5.6
1,089,312
Business information products
104,255
-10.9
117,067
-5.2
123,493
2,502,401
4.8
2,387,953
4.1
2,294,800
Cameras
879,186
15.2
763,079
16.8
653,540
Optical and other products
372,604
17.6
316,821
26.9
249,732
Total
¥
3,754,191
8.3
¥
3,467,853
8.4
¥
3,198,072
NET SALES BY GEOGRAPHIC AREA
Years ended December 31
2005
change
2004
change
2003
(Millions of yen except percentage data)
Japan
Unaffiliated customers
¥
979,748
6.6
%
¥
919,153
7.3
%
¥
856,851
Intersegment
2,046,173
8.7
1,882,973
13.3
1,662,172
Total
3,025,921
8.0
2,802,126
11.2
2,519,023
Americas
Unaffiliated customers
¥
1,139,784
7.8
%
¥
1,057,066
1.2
%
¥
1,044,998
Intersegment
7,424
-16.2
8,863
9.4
8,101
Total
1,147,208
7.6
1,065,929
1.2
1,053,099
Europe
Unaffiliated customers
¥
1,178,672
8.1
%
¥
1,090,712
12.6
%
¥
968,938
Intersegment
2,206
-47.0
4,161
7.8
3,861
Total
1,180,878
7.9
1,094,873
12.5
972,799
Others
Unaffiliated customers
¥
455,987
13.7
%
¥
400,922
22.5
%
¥
327,285
Intersegment
646,530
9.3
591,677
17.6
503,119
Total
1,102,517
11.1
992,599
19.5
830,404
Eliminations
Unaffiliated customers
¥
—
—
%
¥
—
—
%
¥
—
Intersegment
(2,702,333
)
—
(2,487,674
)
—
(2,177,253
)
Total
(2,702,333
)
—
(2,487,674
)
—
(2,177,253
)
Consolidated
Unaffiliated customers
¥
3,754,191
8.3
%
¥
3,467,853
8.4
%
¥
3,198,072
Intersegment
—
—
—
—
—
Total
3,754,191
8.3
3,467,853
8.4
3,198,072
Note:
The segments are defined under Japanese GAAP. In grouping of segment information by product, Japanese GAAP requires that consideration be given to similarities of product types
and characteristics, manufacturing methods, sales markets, and other
factors that are similar. In grouping of segment information by
geographic area, Japanese GAAP requires that consideration be given
to geographic proximity, as well as similarities of economic
activities, interrelationships of business activities and similar
factors. Segment information by geographic area is determined by the
location of the Company or its relevant subsidiary making the sale.
Total operating profit by category is discussed in Item 5A "Operating Results".
14
Table of Contents
Seasonality
Canon's sales for the 4th quarter are usually higher than those in the other three quarters,
mainly owing to strong demand for consumer products, such as cameras and bubble jet printers,
during the year-end holiday season. In Japan, corporate demand for office products peaks in the 1st
quarter, as many Japanese companies close their books in March. Sales also tend to increase at the
start of the new school year in each of the respective regions.
Sources of supply
Canon purchases materials such as glass, aluminums, plastics, steels, and chemicals
for using it for various kinds of parts or manufacturing products. With the development of
globalization in production, we procure raw material from all over the world, and we select
suppliers based on a number of criteria, including environmental friendliness, quality, cost,
supply stability, and financial condition.
Prices of some raw materials fluctuate according to the market. Due to the high price of crude
oil and increase in demand toward China, the market place is tight since the beginning of the year.
However, Canon believes it will be able to continue to obtain sufficient quantities of raw
materials to meet its needs.
Canon places significant emphasis on in-house development of production tools. Canon also
produces many of the tuning and measuring tools needed for the development, maintenance and repair
of its production equipment. Key tools such as these are not marketed for sale; they are reserved
for use within the Canon Group. Canon's ability to develop its own production tools helps establish
quality control and allows for speed and flexibility when retooling is necessary — a crucial
advantage in its cell production processes. Cell production is the production system in which the
entire production process is undertaken by small groups of employees. In-house tool development may
also help cut costs over time and prevent the leakage of Canon's core proprietary technologies.
Competition
Canon encounters intense competition in all areas of its business activity throughout the
world. Canon's competitors range from some of the world's major multinational corporations to
smaller, highly specialized companies. Canon competes in a number of different business areas,
whereas many of its competitors are relatively more focused on one or more individual industries.
Consequently, Canon may face significant competition from entities that apply greater financial,
technological, sales and marketing or other resources than Canon to their activities in a
particular market segment.
The principal elements of competition which Canon faces in each of its markets are technology,
quality, reliability, performance, price and customer service and support. Canon believes that much
of its ability to compete effectively depends on conducting successful research and development
activities that enable it to create new or improved products and release them on a timely basis and
at commercially attractive prices.
The competitive environments in which each product group operates are described below:
•
Business machines
The markets for office imaging products, computer peripherals and business information
products are highly competitive.
Canon's primary competitors in these markets are Xerox Corporation/ Fuji Xerox Corporation,
Hewlett-Packard Company, Lexmark International Group Inc., Ricoh Company, Ltd., Konica Minolta
Holdings, Inc. and Epson Corporation. Canon believes that it is one of the leading global
manufacturers of copying machines, digital MFDs, laser beam printers, bubble jet printers, image
scanners and facsimile machines. In addition to the general elements of competition described
above, Canon's ability to compete successfully in these markets also depends significantly on
whether it can provide effective, broad-based "business solutions" to its customers that solve
multiple interrelated client needs. In particular, the ability to provide equipment and software
that connect effectively to networks (ranging in scope from local area networks to the Internet) is
often a key to Canon's competitive strength in these markets. In China, whose markets are expected
to expand since joining of the World Trade Organization, the current market leaders are Toshiba Tec
Corporation, Sharp Corporation and Konica Minolta Holdings, Inc. Canon is joining this top group by
the introduction of products suited to the market and by the reinforcement of sales and service
channels. Also in regards to the office color market, in addition to Ricoh and Xerox, Konica
Minolta has been very aggressive with its color strategy especially in Europe and the US, and
competition in this market has become fierce.
Also, as a recent trend, convergence of the copier industry and the printer industry has
become apparent. Competition at the low-end segment has turned especially fierce by the impact of
printer-based MFDs on copier market. Canon sees this market convergence as a growth opportunity and
has enhanced its  printer and printer-based MFP lineups. Canon also ensures to differentiate itself
from other competitors by offering comprehensive solutions to customers.
•
Cameras
Competition in the camera industry is intense, with many established market participants
offering superior products with competitive pricing. Canon's primary competitors in digital cameras
are Sony Corporation, Fuji Photo Film Co., Ltd., Olympus Corporation, Nikon Corporation, Casio
Computer Co., Ltd., Matsushita Electric Industrial Co., Ltd., and Eastman Kodak Company.
In the digital SLR market, Canon took the early lead over Nikon have gained more than 50% of
the market share, turning over complete lineup with healthy life cycle, while other manufacturers
struggled to increase their market share. However, the competition is expected to become tougher in
2006, with more newcomers with aggressive approach into the lucrative-looking market. Canon is
committed to keep leading the digital SLR market, with aggressive investment to develop new models.
Canon's primary competitor in the lens market is Nikon Corporation whose popular class digital
single-lens reflex cameras are selling well. Another major competitor is Sigma Corporation, which
sells products that are compatible with Canon's single-lens reflex camera lens.
In the declining market, competitions in the conventional film camera market is now seems to
be limited, such as Nikon Corporation in the SLR, and Olympus Corporation for the compact cameras.
Canon is committed to successfully retain a leading global market-share for SLR cameras, and
maintain its
position as one of the leading compact film camera manufacturers, while maintaining
profitability.
15
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In
Compact Digital Still Camera ("DSC") segment industry's price drop trends will continue in
2006 and it will become tougher to maintain ongoing profit level. Also, the market in the
economically developed countries have seem to be matured.
While we see the above-mentioned tough signs, we also see many positive signs as well. For
instance, as China and Eastern Europe including Russia have shown significant growth, Canon has
increased its business accordingly since Canon has already established fairly good position in
those areas as well. Also, Canon's products' cost down efforts have shown very positive progress
utilizing the advantages of significant scale merit as a world No.1 manufacture. In these sense we
believe Canon's compact DSC business will continue to be positive toward the following year.
Canon's primary competitors in digital video camcorders are Sony Corporation, Matsushita
Electric Industrial Co., Ltd., Victor Company of Japan Ltd. and Samsung Electronics Co., Ltd. In
fiscal 2005, Canon introduced DVD camcorders as well as HDV camcorders to compete with them for
continuous expand of its sales in overall market in digital video camcorders.
•
Steppers and Aligners
The market for steppers and aligners, used in the manufacture of semiconductor devices and
LCDs, is highly competitive. The market is characterized by a relatively small number of dominant
suppliers, since the development of steppers and aligners requires extremely precise design and
manufacturing techniques and, as a result, very high levels of capital investment.
Canon's primary competitors in the market for steppers and aligners are Nikon Corporation and
ASML Holding N.V., or ASML. Nikon Corporation has a reputation for its excellent technology,
especially optical lenses, and Intel Corporation, the world's leading semiconductor manufacturer,
is one of their major customers. ASML has in recent years improved its competitive position by
taking advantage of government subsidies and by focusing on the rapidly growing foundry
manufacturer industry. In fiscal 2002, ASML further increased its competitive position by acquiring
SVG Lithography Systems Inc. As a result of the acquisition, ASML is now one of the largest
semiconductor manufacturing equipment companies in Europe.
Because of the substantial capital expenditures required to install and integrate equipment
into a semiconductor production line, semiconductor manufacturers tend to purchase their stepper
and aligner production equipment from the vendor that originally supplied the chip fabrication
equipment. Canon competes principally on its ability to meet and exceed product specifications,
including resolution and throughput, quality, reliability and system maintenance cost. Because of
the very rapid pace of technological innovation in the semiconductor industry, Canon also believes
that its ability to provide new products on a timely basis is also a key competitive consideration
for customers seeking to integrate stepper and aligner production systems into the planning and
design of their new facilities.
Patents and licenses
Canon holds a large number of patents (including utility model rights), design rights and
trademarks in Japan and abroad to protect its technology products that arise from its research and
development and utilizes these intellectual property rights as important strategic management
tools. For instance, Canon has been utilizing its intellectual property rights such as patents to
expand its products business operations and to form alliances and exchange technologies, with other
companies.
According to the Statistical Report issued annually by the United States Patent and Trademark
Office, Canon has been consistently ranked as second or third in recent years in terms of the
number of patents issued in the United States, as Canon maintained reputation as a famous
technology-oriented company.
Canon has granted licenses with respect to its patents to various Japanese and foreign
companies, particularly in areas such as electrophotography, laser beam printers, multifunction
printers, facsimiles and cameras.
Some examples include:
Oki Electric Industry Co., Ltd.
(LED printers, multifunction printers and facsimiles)
Matsushita Electric Industrial Co., Ltd.
(electrophotography)
Ricoh Company, Ltd.
(electrophotography)
Sanyo Electric Co., Ltd.
(electronic still camera)
Samsung Electronics Co., Ltd.
(laser beam printers, multifunction printers and facsimiles)
Brother Industries, Ltd.
(electrophotography and facsimiles)
Kyocera Mita Corporation
(electrophotography)
Konica Minolta Holding Co.,Ltd.
(business machines)
Toshiba Corporation
(business machines)
Canon has also been granted licenses with respect to patents held by other companies.
Some examples include:
Jerome H. Lemelson Patent Incentives, Inc.
(computer systems, image recording apparatus, and communication apparatus)
Energy Conversion Devices, Inc.
(solar battery)
Honeywell Inc.
(camera and video products)
Gilbert P. Hyatt U.S. Philips Corporation
(microcomputer)
Nano-Proprietary Inc.
(FED technology)
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Canon has also entered into cross-licensing agreements with other major industry participants.
Some examples include:
International Business Machines Corporation
(information handling systems)
Hewlett-Packard Company
(bubble jet printers)
Xerox Corporation
(business machines)
Matsushita Electric Industrial Co., Ltd.
(video tape recorders and video cameras)
Eastman Kodak Co.
(electro-photography and image processing technology)
Ricoh Company, Ltd.
(electrophotography products, facsimiles and word processors)
Canon has placed high priority on the management of its intellectual property as part of its
management strategies to enhance its global business operations. Some products which are material
to Canon's operating results, incorporate patented technology which is critical to the continued
success of these products. Typically, these products incorporate technology reflected in dozens of
different patents. Canon does not believe that its business, as a whole, is dependent on, or that
its profitability would be materially affected by the revocation, termination, expiration or
infringement upon, any particular patent, copyright, license or intellectual property rights or
group thereof.
Environmental regulations
Canon is subject to a wide variety of laws and regulations as well as industry standards
relating to energy and resource conservation, recycling, global warming, pollution prevention,
pollution remediation, and environmental health and safety. Some of the environmental laws which
affect Canon's businesses are summarized below.
1.
European Union Directive on the Restriction of the Use of Certain Hazardous Substances in
Electrical and Electronic Equipment or RoHS Directive, and Directive on Waste Electrical and
Electronic Equipment or WEEE Directive.
These directives were published in the European Union's Official Journal on February 13, 2003.
Member states were required to bring into force the laws necessary to comply with these directives
by August 13, 2004. Commencing July 1, 2006, companies must ensure that their electrical and
electronic equipment sold in the European Union does not contain lead, cadmium, hexavalent
chromium, mercury, polybrominated biphenyls or polybrominated diphenyl ethers if placed on the
market after that date. Pursuant to the RoHS Directive, Canon will be required to adapt its
products so that they do not contain the prohibited hazardous substances.
The WEEE Directive requires that after August 13, 2005, companies that sell electrical and
electronic equipment bearing their trade names in the European Union must arrange and pay for the
collection, treatment, recycling, recovery and disposal of their equipment and achieve designated
recycling rates by December 31, 2006. Pursuant to the WEEE Directive, Canon is joining a collective
compliance scheme for WEEE Directive in each member state, and will achieve the recycling ratio of
waste electrical and electronic equipment through these schemes by the target date. The increased
cost associated with the WEEE Directive may adversely affect Canon's results of operations.
2.
Soil Pollution Prevention Law of Japan
The Soil Pollution Prevention Law of Japan, administered by the Japanese Ministry of the
Environment, went into effect in February 2003. The law requires an owner of land to have the soil
investigated by a designated organization for the purpose of measuring the level of soil pollution
when the land is to be transferred or to be used for another purpose. The results of such
investigation are reported to the prefectural governor. If the soil pollution is not within
standards specified in the law, the governor will designate the land as "a designated area",
publicly announce such designation and make available upon request the investigation report. The
substances designated in the law consist of 25 chemical groups, including substances such as lead,
arsenic, and trichloro ethylene. If there is a possibility that the soil pollution of the
designated area may affect human health, the governor will issue an order to the land owner to take
remedial actions.
In
response to the law, Canon had commenced a detailed survey and measurement of soil and
groundwater to determine the existence of pollution at all of Canon Group's operational sites in
Japan. Additional costs may arise as remedial measures become necessary. These factors may
adversely affect Canon's results of operations and financial conditions.
See
"Risk Factors — Risks Related to Environmental Issues
— Environmental clean-up and remediation
costs relating to Canon's properties and associated litigation could decrease Canon's net cash
flow, adversely affect its results of operations and impair its financial condition."
3.
Law for Promotion of Effective Utilization of Resources of Japan
The Law for Promotion of Effective Utilization of Resources of Japan, administered by the Japanese
Ministry of Economy, Trade and Industry, was enacted in April 2001. This Law requires manufacturers
of "specified reuse-promoted products", including copiers, to promote the use of recyclable
resources and recovered products (designing and manufacturing products that can be easily reused or
recycled). These requirements will increase Canon's costs and may have an adverse affect on its
results of operations.
This law will be amended to require the producers of covered products to mark their products
manufactured on and after July 1, 2006 with an orange "content mark" when they contain any of 6
substances restricted by EU RoHS Directive. If products do not contain these 6 substances, they can
be marked with "green mark" voluntarily. This marking system is called Japan-Marking of Special
Substances, or "J-MOSS," and is provided by JIS C 0950:2005 standards. Although
the copying machines do not have to be marked with these "content marks" at present, they will
surely be covered by the requirement in the future. We expect that this new requirement will have
influence on the green procurement of Japanese governmental agencies and might have some effect on
Canon's business.
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4.
Law on Promoting Green Purchasing of Japan
The Law on Promoting Green Purchasing of Japan, administered by the Japanese Ministry of the
Environment, took effect in April 2001. The law encourages both national and local governments to
procure products with low environmental burdens. Businesses are required to provide information
that is necessary to determine the environmental impact of products that they manufacture.
In response to the law, Canon now promotes to:
•
manufacture products that consume less electricity to prevent global warming and to conserve energy,
•
use recycled parts and recycled materials,
•
reduce the types of raw materials used in order to conserve resources, and
•
accelerate the date by which the requirements of the law are implemented to promote the elimination of hazardous substances.
The law also requires Canon to collect its used products and recycle them, establish alternative
technologies for hazardous substances used in products and standardize the substances used in its
products. These measures will entail additional costs and may adversely affect its results of
operations and financial conditions.
5.   Draft
European Union Directive on Batteries and Accumulators and Spent
Batteries and Accumulators
On November 21, 2003, the European Commission proposed a draft Directive on Batteries and
Accumulators and Spent Batteries and Accumulators to replace a similar existing directive. In
November 2005, the European Parliament started its second reading of this matter. Whereas the
existing directive applies only to batteries with a certain mercury, cadmium and lead content, the
new directive applies to all batteries and accumulators placed on the European Community market.
When enacted, the new directive will require specified labels on all batteries. In addition, the
directive establishes specific targets for collection, treatment and recycling of batteries and
accumulators. Canon expects that compliance with the directive will increase its financial costs
such as recycling fees and guarantees of products placed on the market.
6.   Clean Production Promotion Law of China
The Clean Production Promotion Law of China, administered by the standing committee of the National
people's congress, effective as of January 1, 2003, provides, among other things, for
environmentally conscious design, elimination of hazardous substances, ease of disassembly,
material identification, collection and recycling. The Chinese government is expected to publish a
list of products to be collected, but it is yet unclear what action Canon needs to take at the
present time.
7.   Administrative Measures on the Control of Pollution Caused by Electronic Information Products of China
Modeled on the European Union RoHS Directive described above, the Chinese Ministry of Information
Industry published Administrative Measures on the Control of Pollution Caused by Electronic
Information Products on February 28, 2006. These measures regulate the content of electronic
information products, and will be implemented as of March 1, 2007. All the electronic information
products would have to put a certain China specific mark on them and to show their contents of the
EU RoHS substances. In addition, the content of 6 substances in specific electronic information
products (those specified in the "list for emphasized management") would be restricted by the
similar limitation of the EU RoHS Directive, and China specific compulsory products certification
system will be introduced for such products. However, the standards to implement these measures,
and the "emphatic management list" have not been published. These requirements will increase
Canon's costs and may have an adverse affect on its results of operations and financial conditions.
8.   Executive Order of the United States
The Executive Order 13221 Energy Efficient Standby Power Devices, published on August 2, 2001 and
amended on September 3, 2004 (Administered by U.S. Department of Energy), requires the Federal
Government to purchase consumer products that use no more than one watt (two watt for a product
with a facsimile function) in their standby power consuming mode. Canon's products such as laser
beam printer, MFP and FAX need to have a hard switch or they need to incorporate energy conserving
designs which reduce the energy consumption at the standby mode to meet the require watts.
9.   The European Framework for the management of chemical substances, or REACH Regulations
The European Union is currently considering the REACH Regulations which would establish a framework
for the management scheme for all the commercial chemical substances. This framework, if adopted,
would apply to almost all the chemicals (that is, products in gaseous, liquid, paste or powdery
form) and some of the "articles" (products in solid state) manufactured in or imported into the
European Union. All the chemicals manufactured/imported over specific threshold would have to
register in the European Union and provide information about their usage or their chemical
characters, etc., and use of substances regarded as "dangerous" might be prohibited. The
Regulations are still under discussion in the European Parliament and the Council and the final
details are unclear yet, but if such requirements are enacted, they might increase Canon's costs.
10.   The European Framework for the Setting of Requirements for Energy-Using Products (so-called "EuP directive")
The European Union published the directive that would establish a framework for the setting of
environmental requirements for energy-using products, or the "EuP directive", in July 22, 2005.
Member states are required to bring into force the laws necessary to comply with the directive
concerning eco-design by August 11, 2007. This framework directive would apply to all products that
use energy, and under this directive, "implementing measures" for specific product categories
would be adopted by the European Commission and the member states. Until these implementing
measures are clarified, it is difficult to estimate the concrete effects of the EuP directive. But
one of the first implement measures is expected to require that covered products should not use
more than 1 watt (2 watts for a product with a facsimile function) in their standby mode, like the
U.S. Executive Order 13221 mentioned in paragraph 8 above.
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11.   Kyoto Protocol to the United Nations Framework Convention on Climate Change
The Kyoto Protocol to the United Nations Framework Convention on Climate Change entered into
force on February 16, 2005 as Russia ratified it in November 2004.
In order to achieve a goal set in the Kyoto Protocol, a Kyoto Protocol Target Achievement Plan
was issued by the Japanese Government and decided at a Cabinet Meeting in April, 2005 and ensuing
revision of Energy Conservation Law as well as Global Warming Prevention Promotion Law will come
into force in April, 2006.
Canon will try to achieve its voluntary action plan that corresponds to voluntary action plan
of Electric & Electronic Industry Associations to which Canon belongs and comply with the revised
laws and submit information and plans required by the Japanese Government. However, Canon further
expects that the Japanese Government might adopt stricter measures to let Japanese industries
achieve their voluntary action plans by all means or other scheme to let Japanese nation share part
of costs to achieve the Japanese goal by means of an environment taxation, etc. Therefore, Canon
will carefully monitor the Japanese Government and consider a contingency plan, among others,
including a Kyoto Mechanism.
C.
Organizational structure
Canon Inc. and its subsidiaries and affiliates form a group of which Canon Inc. is the parent
company. As of December 31, 2005, Canon had 200 consolidated subsidiaries and 13 affiliated
companies accounted for by the equity method.
The following table lists the significant subsidiaries owned by Canon Inc., all of which are
consolidated, as of December 31, 2005.
Proportion of
Proportion of
ownership interest
voting power
Name of company
Head office location
owned
held
Canon Sales Co., Inc.
Tokyo, Japan
50.3
%
51.1
%
Canon U.S.A., Inc.
New York, U.S.A.
100.0
%
100.0
%
Canon Europa N.V.
Amstelveen, The Netherlands
100.0
%
100.0
%
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D.
Property, plants and equipment
Canon's manufacturing is conducted primarily at 23 plants in Japan and 17 plants in other
countries. Canon owns all of the buildings and the land on which its plants are located, with the
exception of certain leases of land and floor space of certain of its subsidiaries. The names and
locations of Canon's plants
and other facilities, their approximate floor space and the principal activities and products
manufactured therein as at December 31, 2005 are as follows:
Floor space
(including
Name and location
leased space)
Principal activities and products manufactured
Domestic
(Thousands of
square feet)
Headquarters, Tokyo
2,267
R&D, corporate administration, other functions
Mizonokuchi Human Resources Development center, Kanagawa
78
Human Resources Development Training & administration
Kosugi Office, Kanagawa
398
Development of software for office imaging products
Fuji-Susono Research Park, Shizuoka
1,038
R&D in electrophotographic technologies
Hiratsuka Development Center, Kanagawa
375
Development of displays, electronic devices
Ayase Office, Kanagawa
394
R&D and manufacturing of semiconductor devices
Optics R&D Center, Tochigi
473
R&D in optical technologies, development of broadcasting
equipment
Tamagawa Plant, Kanagawa
434
Development of Ink Jet printers, Ink Jet chemical products
Yako Development Center, Kanagawa
509
Development of inkjet printers, Ink Jet chemical products
Utsunomiya Plant, Tochigi
1,442
Manufacturing of EF lenses, video camcorder lenses,
broadcasting lenses, lenses for business machines, other
specialized optical lenses
Toride Plant, Ibaraki
2,910
R&D in electrophotographic technologies, mass-production
trials and support; manufacturing of chemical products
Ami Plant, Ibaraki
1,338
Manufacturing of office imaging products, chemical
products, semiconductor production equipment; design and
manufacturing of factory automation equipment and metal
molds
Utsunomiya Optical Products Plant, Tochigi
1,420
R&D, manufacturing, sales and servicing of semiconductor
equipment; sales of broadcasting equipment; R&D and sales
of medical equipment
Canon Electronics Inc., Saitama and Gunma
1,074
Development, production and sales of camera components,
magnetic heads, sensors, micrographics, document
scanners, LBPs, laser scanner units, portable data
terminals, semiconductor equipment
Canon Finetech Inc, Ibaraki, Tokyo, Yamanashi, and Fukui
899
Production and sales of business machines, business
machine peripherals, chemical products, business-use
printers
Canon Precision Inc., Aomori
1,280
Development, production and sales of motors; production
of toner cartridges, sensors
Optron Inc., Ibaraki
150
Polishing of optical crystals (for steppers, cameras,
telescopes), vapor deposition materials
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Table of Contents
Floor space
(including
Name and location
leased space)
Principal activities and products manufactured
Domestic
(Thousands of
square feet)
Canon Chemicals Inc., Ibaraki
1,756
Toner cartridges and advanced-function parts, plastic precision-molded parts, metal molds
Canon Components Inc., Saitama
430
Image sensor units, printed circuit boards, Ink Jet print heads/ink tanks
Oita Canon Inc., Oita
1,149
SLR cameras, digital SLR and compact cameras, digital video camcorders, visual communication cameras
Nagahama Canon Inc., Shiga
1,059
LBPs, toner cartridges, a-si drums, Ink Jet print heads/ink tanks
Oita Canon Materials Inc., Oita
1,201
Chemical products for copying machines and printers
Ueno Canon Materials Inc., Mie
541
Chemical products for copying machines and printers
Fukushima Canon Inc., Fukushima
970
Production of inkjet printers, Ink Jet print heads/ink tanks; analysis of software and fonts
Canon Semiconductor Equipment Inc., Ibaraki
583
Development and production of semiconductor production-related equipment; production of
small-sized copying machines and copying units
Canon Ecology Industry Inc., Ibaraki and Saitama
329
Recycling of toner cartridges; business machine repair
Nisca Corporation, Yamanashi
470
Development, design, production and sales of business machines, information products, optical equipment
Miyazaki Daishin Canon Co., Ltd., Miyazaki
121
Digital video camcorders, digital cameras, electronics packaging
Canon ANELVA Corporation
562
Electron devices, panel devices, electronic components for R&D
Canon Machinery Inc.
296
Semiconductor, electronic components, energy relation
SED Inc.
291
Flat-screen SED (Surface-conduction Electron-emitter Display) panels
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Table of Contents
Floor space
(including
Name and location
leased space)
Principal activities and products manufactured
Overseas
(Thousands of
square feet)
[Europe]
Canon Giessen GmbH, Giessen, Germany
362
Production and remanufacturing of copying machines; refilling
of toner cartridges; remanufacturing of semiconductor
production equipment
Canon Bretagne S.A.S., Liffre, France
506
Production of low-speed copying machines and toner cartridges;
recycling of toner cartridges
[America]
Canon Virginia, Inc., Virginia, U.S.
828
Production of LBPs, toner cartridges, toner for copying machines
[Asia]
Canon Inc., Taiwan, Taiwan
414
Production of SLR and compact cameras, EFS and other lenses,
precision-metal molds
Canon Opto (Malaysia) Sdn. Bhd., Selangor, Malaysia
551
Production of Digital cameras, EF lenses, optical lens parts
Canon Dalian Business Machines, Inc., Dalian China
1,095
Production and recycling of toner cartridges; production of LBPs, MFDs
Cannon Zhuhai, Inc., Zhuhai, China
678
Production of Compact cameras, digital cameras, LBPs, MFDs,
image scanners, contact image sensors
Tianjin Canon Inc., Tianjin, China
148
Production and sales of copying machines
Canon Hi-Tech (Thailand) Ltd., Ayutthaya, Thailand
976
Ink Jet printers, personal-use copying machines, facsimile machines, MFDs
Canon Engineering (Thailand) Ltd., Ayutthaya, Thailand
129
Metal molds, plastic injection mold parts
Canon Zhongshan Business Machines Co., Ltd., Zhongshan, China
492
Production of laser beam printers
Canon Vietnam Co., Ltd., Hanoi, Vietnam
1,043
Production of Ink Jet printers
Canon (Suzhou) Inc., Suzhou, China
797
Production of Color and monochrome digital copying machines
Canon Finetech (Suzhou) Business Machines Inc., Suzhou, China
305
Production of digital printers, peripherals, service parts
Thai Nisca Co. Ltd., Ayutthaya, Thailand
190
Production and sales of optical equipment and OA equipment
Canon Finetech Industries Development Co., Ltd., Shenzhen, China
215
Production and sales of copying machines, semi-finished products, parts
Canon Ayutthaya (Thailand) Ltd., Thailand
182
Ink Jet printers, personal-use copying machines, facsimile machines, MFDs
Canon considers its manufacturing and other facilities to be well maintained and believes that
its plant capacity is adequate for its current requirements.
At December 31, 2005, land, buildings and related equipment with a book value of Yen 7,423 million
were subject to mortgages securing Yen 2,227 million of Canon's indebtedness.
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Table of Contents
Item 5.
Operating and Financial Review and Prospects
A.
Operating Results
The following discussion and analysis provides information that management believes to be
relevant to understanding Canon's consolidated financial condition and result of operations.
Overview
Canon is one of the world's leading manufacturers of copying machines, laser beam printers,
inkjet printers, cameras, steppers and aligners. Canon earns revenues primarily from the
manufacture and sale of these products domestically and internationally. Canon's basic management
policy is to contribute to the prosperity and well-being of the world while endeavoring to become a
truly excellent global corporate group targeting continued growth and development.
Canon divides its businesses into three product groups: business machines, cameras and optical
and other products. The business machines product group has three sub-groups: office imaging
products, computer peripherals and business information products.
Economic environment
Looking back at the global economy in 2005, the U.S. economy continued to display growth
despite concern over the economic impact of escalating crude oil prices and the damage caused by
Hurricane Katrina, with healthy employment conditions and continued growth in consumer spending. In
Europe, while the recovery in consumer spending appeared to falter, such factors as growth in the
production sector amid strong exports indicate a trend toward moderate recovery. As for Asia, China
continued to achieve a high rate of economic growth, mainly fueled by exports, while other Asian
economies also recorded generally favorable performances. In Japan, the economy continued to
gradually recover owning to such factors as increased corporate investment supported by favorable
corporate profits and improved consumer spending.
Market environment
With respect to the markets in which Canon operates, demand in the digital camera segment for
single lens reflex ("SLR") models continued to grow significantly during fiscal 2005. Sales of
digital compact cameras also remained strong to realize healthy overall growth for the segment.
Demand for network digital multifunction devices ("MFDs") remained solid as the office market,
including small-scale enterprises, moved toward color and multifunctionality. Although sales of
computer peripherals, including printers, grew for both multifunction and color models, the segment
suffered amid a shift in further demand toward high-performance low-priced machines and severe
price competition. Demand for steppers, used in the production of semiconductors, tapered off after
the summer of 2004 as the chip manufacturing market entered a correction phase. The market for
projection aligners, which are used in the production of liquid crystal display ("LCD") panels,
enjoyed stable growth, fueled by increased investment by LCD panel manufacturers amid the rapid
expansion of the LCD television market. The average value of the yen
for the year was Yen 110.58 to
the U.S. dollar and Yen 137.04 to the euro, representing a year-on-year decrease of almost 2%
against both currencies.
Summary of operations
Canon achieved record highs in both consolidated net sales and net income, and a sixth
consecutive year of sales and profit growth, mainly due to a significant increase in sales of
digital cameras and color network digital MFDs, along with an increase in sales of projection
aligners. In fiscal 2005, Canon achieved 8.3% growth in net sales, to
Yen 3,754,191 million, and an
11.9% increase in net income, to Yen 384,096 million. Canon's gross profit increased by 6.2%, to
Yen 1,819,043 million.
Key performance indicators
Following are the key performance indicators ("KPIs") that Canon uses in managing its
business. The changes from year to year in these KPIs are set forth in the table shown below.
KEY PERFORMANCE INDICATORS
2005
2004
2003
2002
2001
Net sales (Millions of yen)
¥
3,754,191
¥
3,467,853
¥
3,198,072
¥
2,940,128
¥
2,907,573
Gross profit to net sales ratio
48.5
%
49.4
%
50.3
%
47.6
%
44.0
%
R&D expense to net sales ratio
7.6
%
7.9
%
8.1
%
7.9
%
7.5
%
Operating profit to net sales ratio
15.5
%
15.7
%
14.2
%
11.8
%
9.7
%
Inventory turnover within days
47 days
49 days
49 days
51 days
57 days
Debt to total assets ratio
0.8
%
1.1
%
3.1
%
5.0
%
10.4
%
Stockholders' equity to total assets ratio
64.4
%
61.6
%
58.6
%
54.1
%
51.3
%
Note: Inventory turnover within days; Inventory divided by net sales for the previous six
months, multiplied by 182.5.
23
Table of Contents
-Revenues-
As Canon seeks to become a truly excellent global company, one indicator upon which Canon's
management places strong emphasis is revenue. Following are some of the KPIs relating to revenues
that management considers to be important.
Net sales is one such KPI. Canon derives net sales primarily from the sale of products and, to
a lesser extent, providing of services relating to its products. Sales vary based on such factors
as product demand, the number and size of transactions within the reporting period, product
reputation for new products, and changes in sales prices. Other factors involved are market share
and market environment. In addition, management considers an evaluation of net sales by product
group to be important in assessing Canon's performance in sales in various product groups in light
of market trends.
Gross profit ratio (ratio of gross profit to net sales) is another KPI for Canon. Through its
reforms in product development, Canon has been striving to shorten product development lead times
in order to launch new, competitively priced products at a faster pace. In addition, Canon has
achieved cost reductions through efficiency enhancements in production. Canon believes that these
achievements have contributed to improving Canon's gross profit ratio, and Canon intends to
continue to pursue further shortening of product development lead times and reductions in
production costs.
Operating profit ratio (ratio of operating profit to net sales) and research and development
("R&D") expense to net sales ratio are considered by Canon to be KPIs. Canon is focusing on two
areas for improvement. On the one hand, Canon strives to control and reduce its selling, general
and administrative expenses. On the other hand, Canon's R&D policy is designed to maintain a high
level of spending in core technology in order to sustain Canon's leading position in its current
fields of business, and to explore possibilities in other markets. Canon believes such investments
will be the basis for future success in its business and operations.
-Cash Flow Management-
Canon also places significant emphasis on cash flow management. The following are the KPIs
relating to cash flow management that management believes to be important.
Inventory turnover within days is a KPI because it is a measure of supply chain management
efficiency. Inventories have inherent risks of becoming obsolete, deteriorating or otherwise
decreasing in value significantly, which may adversely affect Canon's operating results. To
mitigate these risks, management believes that it is important to continue reducing inventories and
shortening production lead times in order to achieve early recovery of related product expenses by
strengthening supply chain management.
Canon's management seeks to meet its liquidity and capital requirements primarily with cash
flow from operations and also seeks debt-free operations. For a manufacturing company such as
Canon, the process for realizing profit on any endeavor can be lengthy, involving as it does R&D,
manufacturing and sales activities. Management, therefore, believes that it is important to have
sufficient financial strength so that it does not have to rely on external funding. Canon has
continued to reduce its reliance on external funding for capital investments in favor of generating
the necessary funds from its own operations.
Stockholders' equity to total assets ratio (ratio of total stockholder's equity to total assets)
is another KPI for Canon. Canon believes that stockholders' equity to
total assets ratio measures its long-term viability. Canon believes that a high or increasing
stockholders' equity ratio usually indicates that Canon has a good, or improving ability to fund
debt obligations and other unexpected expenses, which means in the long-term that Canon is better
able to maintain a high level of stable investments for its future operations and development. As
Canon puts a strong emphasis on its research and development activities, management believes that
it is important to maintain a stable financial base and, accordingly, a high level of stockholders'
equity to total assets ratio.
Critical accounting policies and estimates
The consolidated financial statements are prepared in accordance with U.S. generally accepted
accounting principles, and based on the selection and application of significant accounting
policies, which require management to make significant estimates and assumptions. Canon believes
that the following are some of the more critical judgment areas in the application of its
accounting policies that currently affect its financial condition and results of operations.
Revenue recognition
Canon generates revenue principally through the sale of consumer products, equipment, supplies and
related services under separate contractual arrangements. Canon recognizes revenue when persuasive
evidence of an arrangement exists, delivery has occurred and title and risk of loss have been
transferred to the customer, the sales price is fixed or determinable, and collectibility is
probable.
For arrangements with multiple elements, which may include any combination of equipment,
installation and maintenance, Canon allocates revenue to each element based on its relative fair
value if such element meets the criteria for treatment as a separate unit of accounting as
prescribed in the Emerging Issues Task Force Issue No.00-21 ("EITF 00-21"), "Revenue Arrangements
with Multiple Deliverables." Otherwise, revenue is deferred until the undelivered elements are
fulfilled as a single unit of accounting.
Revenue from sales of consumer products including office imaging products, computer
peripherals, business information products and cameras is recognized upon shipment or delivery,
depending upon when title and risk of loss transfer to the customer.
Revenue from sales of optical equipment such as steppers and aligners sold with customer
acceptance provisions related to their functionality is recognized when the equipment is installed
at the customer site and the specific criteria of the equipment functionality are successfully
tested and demonstrated by Canon. Service revenue is derived primarily from maintenance contracts
on equipment sold to customers and is recognized over the term of the contract.
Most office imaging products are sold with service maintenance contracts for which the
customer typically pays a base service fee plus a variable amount based on usage. Revenue from
these service maintenance contracts is recognized as services are provided.
Revenue from the sale of equipment under sales-type leases is recognized at the inception of
the lease. Income on sales-type leases and direct-financing leases is recognized over the life of
each respective lease using the interest method. Leases not qualifying as sales-type leases or
direct-financing leases are accounted for as operating leases and related revenue is recognized
over the lease term.
Canon records estimated reductions to sales at the time of sale for sales incentive programs
including product discounts, customer promotions and volume-based rebates. Estimated reductions in
sales are based upon historical trends and other known factors at the time of sale. In addition,
Canon provides price protection to certain resellers of its products, and records reductions to
sales for the estimated impact of price protection obligations when announced.
Estimated product warranty costs are recorded at the time revenue is recognized and is
included in selling, general and administrative expenses. Estimates for accrued product warranty
costs are based on historical experience, and are affected by ongoing product failure rates,
specific product class failures outside of
the baseline experience, material usage and service delivery costs incurred in correcting a
product failure.
24
Table of Contents
Allowance for doubtful receivables
Allowance for doubtful receivables is determined using a combination of factors to ensure that
Canon's trade and financing receivables are not overstated due to uncollectibility. Canon maintains
a bad debt reserve for all customers based on a variety of factors, including the length of time
receivables are past due, trends in overall weighted average risk rating of the total portfolio,
macroeconomic conditions, significant one-time events and historical experience. Also, Canon
records specific reserves for individual accounts when Canon becomes aware of a customer's
inability to meet its financial obligations to Canon, such as in the case of bankruptcy filings or
deterioration in the customer's operating results or financial position. If circumstances related
to customers change, estimates of the recoverability of receivables would be further adjusted.
Valuation of inventories
Inventories are stated at the lower of cost or market value. Cost is determined principally by the
average method for domestic inventories and the first-in, first-out method for overseas
inventories. Market value is the estimated selling price in the ordinary course of business less
the estimated costs of completion and the estimated costs necessary to make a sale. Canon routinely
reviews its inventories for their salability and for indications of obsolescence to determine if
inventories should be written-down to market value. Judgments and estimates must be made and used
in connection with establishing such allowances in any accounting period. In estimating the market
value of its inventories, Canon considers the age of the inventories and the likelihood of spoilage
or changes in market demand for its inventories.
Environmental liabilities
Canon is subject to liability for the investigation and clean-up of environmental contamination at
each of the properties that Canon owns or operates, as well as at certain properties Canon formerly
owned or operated. Canon employs extensive internal environmental protection programs that focus on
preventive measures. Canon conducts environmental assessments for a number of its locations and
operating facilities. If Canon was to be held responsible for damages in any future litigation or
proceedings, such costs may not be covered by insurance and may be material. The liability for
environmental remediation and other environmental costs is accrued when it is considered probable
and costs can be reasonably estimated.
Valuation of deferred tax assets
Canon currently has significant deferred tax assets, which are subject to periodic recoverability
assessments. Realization of Canon's deferred tax assets is principally dependent upon its
achievement of projected future taxable income. Canon's judgments regarding future profitability
may change due to future market conditions, its ability to continue to successfully execute its
operating restructuring activities and other factors. Any changes, in any of these factors may
require possible recognition of significant valuation allowance to these deferred tax asset
balances. When Canon determines that certain deferred tax assets may not be recoverable, the
amounts which will not be realized are charged to income tax expense and will adversely affect net
income.
Employee retirement and severance benefit plans
Canon has significant employee retirement and severance benefit obligations which are recognized
based on actuarial valuations. Inherent in these valuations are key assumptions, including discount
rates and expected return on plan assets. Management must consider current market conditions,
including changes in interest rates, in selecting these assumptions. Other assumptions include
assumed rate of increase in compensation levels, mortality rate and withdrawal rate. Changes in
these assumptions inherent in the valuation are reasonably likely to occur from period to period.
These changes in assumptions may lead to changes in related employee retirement and severance
benefit costs in the future.
Actual results that differ from the assumptions are accumulated and amortized over future
periods and, therefore, generally affect future pension expenses. While management believes that
the assumptions used are appropriate, the differences may affect employee retirement and severance
benefit costs in the future.
In preparing its financial statements for fiscal 2005, Canon estimated a discount rate of 2.7%
and an expected long-term rate of return on plan assets of 4.6%. In estimating the discount rate,
Canon uses available information about rates of return on high-quality fixed-income governmental
and corporate bonds currently available and expected to be available during the period to the
maturity of the pension benefits. Canon establishes the expected long-term rate of return on plan
assets based on management's expectations of the long-term return of the various plan asset
categories in which it invests. Management develops expectations with respect to each plan asset
category based on actual historical returns and its current expectations for future returns.
Decreases in discount rates lead to increases in actuarial pension benefit obligations which,
in turn, could lead to an increase in service cost and amortization cost through amortization of
actuarial gain or loss, a decrease in interest cost and vice versa. A decrease of 50 basis points
in the discount rate increases the projected benefit obligation by approximately 11%. The net
effect of changes in the discount rate, as well as the net effect of other changes in actuarial
assumptions and experience, are deferred until subsequent periods, as permitted by the Statement of
Financial Accounting Standards No. 87, "Employers' Accounting for Pensions."
Decrease in expected return on plan assets may increase net periodic benefit cost by
decreasing expected return amounts, while differences between expected value and actual fair value
of those assets could affect pension expense in the following years, and vice versa. For fiscal
2006, if a change of 50 basis points in the expected long-term rate of return on plan assets is to
occur, that may cause a change of approximately Yen 2,730 million in net periodic benefit cost.
Canon multiplies management's expected long-term rate of return on plan assets by the value of its
plan assets, to arrive at the expected return on plan assets that is included in pension income
(expense). Canon defers recognition of the difference between this expected return on plan assets
and the actual return on plan assets. The net deferral of unrecognized actuarial gains (losses)
affects the value of plan assets in future fiscal years and, ultimately, future pension income
(expense).
25
Table of Contents
Consolidated result of operations
Fiscal 2005 compared with fiscal 2004
Summarized results of operations for fiscal 2005 and fiscal 2004 are as follows:
2005
Change
2004
(
Millions of yen, except per share
amounts and percentage data)
Net sales
¥
3,754,191
+8.3
%
¥
3,467,853
Operating profit
583,043
+7.2
543,793
Income before income taxes and minority interests
612,004
+10.8
552,116
Net income
384,096
+11.9
343,344
Net income per share:
Basic
432.94
+11.6
387.80
Diluted
432.55
+11.8
386.78
Note: See
note of Item 3A "Selected Financial Data."
Sales
Canon's consolidated net sales in fiscal 2005 totaled Yen 3,754,191 million. This represents
an 8.3% increase from the previous fiscal year, reflecting significant growth in sales of digital
cameras, color network digital MFDs and projection aligners.
Overseas operations are significant to Canon's operating results and generated approximately
74% of total net sales in fiscal 2005. Such sales are denominated in the applicable local currency
and are subject to fluctuations in the value of the yen in relation to such other currencies.
Despite efforts to reduce the impact of currency fluctuations on operating results, including
localizing some manufacturing and procuring parts and materials from overseas suppliers, Canon
believes such fluctuations have had and will continue to have a significant effect on results of
operations.
The average value of the yen in fiscal 2005 was Yen 110.58 to the U.S. dollar, and Yen 137.04
to the euro, representing a depreciation of 2% against both currencies, compared with the previous
year. These effects of foreign exchange rate fluctuations favorably impacted net sales by
approximately Yen 66,400 million. Net sales denominated in foreign currency increased by
approximately Yen 41,500 million in U.S. dollars, increased by Yen 16,300 million in euro, and
increased by Yen 8,600 million in other foreign currencies.
Cost of sales
Cost of sales principally reflects the cost of raw materials, parts and labor used by Canon in the
manufacture of its products. A portion of the raw materials used by Canon is imported or includes
imported materials. Such raw materials are subject to fluctuations in world market prices and
exchange rates that may affect Canon's cost of sales. Other components of cost of sales include
depreciation expenses from plants, maintenance expenses, light and fuel expenses and rent expenses.
The ratio of cost of sales to net sales for fiscal 2005, 2004 and 2003 was 51.5%, 50.6% and 49.7%,
respectively.
Gross profit
Canon's gross profit in fiscal 2005 increased by 6.2% to Yen 1,819,043 million from fiscal
2004. Despite such negative factors as escalating prices of raw materials and a severe price
competition, gross profit ratio for the year remained at high, with a decrease of 0.9 points
from the previous year, owing to cost reductions realized through ongoing production-reform and
procurement-reform efforts.
Selling, general and administrative expenses and research and development expenses
The major components of selling, general and administrative expenses are payroll, R&D,
advertising expenses and other marketing expenses. Although R&D expenses grew 4.1% from the
previous year to Yen 286,476 million, keeping spending growth below the growth rate for net sales,
the selling, general and administrative expenses to net sales ratio improved 0.7 points. In
general, Canon maintains a high level of R&D expenditure to strengthen its R&D capabilities. R&D
expenditures grew in fiscal 2005 from the previous year, resulting from increased R&D activities.
Operating profit
Operating profit in fiscal 2005 increased by 7.2% to Yen 583,043 million from fiscal 2004.
Operating profit in fiscal 2005 was 15.5% of net sales, compared with 15.7% in fiscal 2004.
Other income (deductions)
Other income (deductions) improved by Yen 20,638 million, attributable to an increase of
interest revenue, resulting from such factors as an increase in surplus funds accompanying the
improved balance sheet and a rise in interest rates in the United States, along with a decrease in
currency exchange losses.
Income before income taxes and minority interests
Income before income taxes and minority interests in fiscal 2005 was Yen 612,004 million, a
10.8% increase from fiscal 2004, and constituted 16.3% of net sales.
26
Table of Contents
Income taxes
Provision for income taxes increased by Yen 18,771 million from fiscal 2004, primarily as a
result of the increase in income before income taxes and minority interests. The effective tax rate
during fiscal 2005 declined by 0.3% compared with fiscal 2004.
Net income
Net income in fiscal 2005 increased by 11.9% to Yen 384,096 million, which exceeds the growth
rate of income before income taxes and minority interests. This represents a 10.2% return on net
sales.
Product information
Canon divides its businesses into three product groups: business machines, cameras and optical and
other products.
•
The business machines product group
includes office imaging products, computer
peripherals and business information products.
•
Office imaging products include office network digital MFDs, color network digital MFDs,
office copying machines, personal-use copying machines and full-color copying machines.
•
Computer peripherals include laser beam printers, inkjet printers, inkjet multifunction
peripherals and image scanners.
•
Business information products include micrographic equipment, personal computers and
calculators.
•
The cameras product group
includes SLR cameras, compact cameras, digital cameras and
digital video camcorders.
•
The optical and other products product group
includes steppers for
semiconductor chip production, mirror projection mask aligners used in the production of
LCDs, television broadcasting lenses and medical equipment.
Effective January 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 the current relation with
those products. Accordingly, information for previous fiscal years has been reclassified to conform
with the current classification.
Sales by product
Canon's sales by product group are summarized as follows:
2005
Change
2004
(Millions of yen, except percentage data)
Business machines:
Office imaging products
¥
1,153,240
+2.9
%
¥
1,120,972
Computer peripherals
1,244,906
+8.3
1,149,914
Business information products
104,255
-10.9
117,067
Total business machines
2,502,401
+4.8
2,387,953
Cameras
879,186
+15.2
763,079
Optical and other products
372,604
+17.6
316,821
Total
¥
3,754,191
+8.3
%
¥
3,467,853
Sales of business machines, constituting 66.7% of consolidated net sales, increased 4.8%, to
Yen 2,502,401 million in fiscal 2005.
Sales of office imaging products increased 2.9%, to Yen 1,153,240 million. Demand for network
digital MFDs continues to shift from monochrome machines to color models, as well as towards
higher-end features. The Color imagingRunner("iR") C3170/2570 series, equipped with a new
high-speed image-processing chip, and the iR C3220/2620 series continued to sell well in both Japan
and European markets, as did the new high-speed iR C6870/5870 series models. Among monochrome
network digital MFDs, mid-level models such as the iR4570/3570/2870/2270 series contributed to
expanded sales, along with the iR6570/5570, featuring energy-saving performance and high
productivity, and the iR2020/2016 series, with enhanced networking features. Color office imaging
products accounted for 28% and 24% and monochrome office imaging products accounted for 56% and 62%
of office imaging products sales in fiscal 2005 and 2004, respectively. Sales of facsimiles and
information system business accounted for 16% and 14% of sales of office imaging products in both
fiscal 2005 and 2004, respectively.
Sales of computer peripherals increased 8.3% to Yen 1,244,906 million. Laser beam printers
enjoyed a year-on-year increase in unit sales, with color models growing more than 30% and
monochrome machines, particularly low-end models, also recording healthy growth. Sales in value
terms also rose despite the effect of the shift in market demand toward lower priced models. Inkjet
printers recorded an increase in unit sales of more than 10%, with the PIXMA iP3000/4000 and, in
markets outside of Japan, the PIXMA MP110/130 maintaining brisk sales. Additionally, newly
introduced models, including the PIXMA iP4200, the PIXMA iP1600 in overseas markets, and high-speed
all-in-one models such as the PIXMA MP500, contributed to a stronger product lineup, which also
fueled sales growth in value terms.
Sales of business information products decreased 10.9%, to Yen 104,255 million in fiscal 2005,
mainly due to the intentional curtailing of personal computer sales in the domestic market.
27
Table of Contents
Sales of cameras continued to achieve significant sales growth of 15.2%, totaling Yen 879,186
million. The continued strong demand for digital SLR cameras has fueled robust growth, with the
EOS DIGITAL REBEL XT, launched in the first half of 2005, and the EOS 5D, launched in the second
half, recording particularly strong sales along with continued healthy sales of the EOS 20D,
launched in the previous period. This, in turn, has led to expanded sales of interchangeable lenses
for SLR cameras. Sales of compact-model digital cameras also continued to expand steadily, with
healthy demand for the PowerShot SD400 and PowerShot A520, launched in the first half of 2005, as
well as the PowerShot SD550 and PowerShot SD450 models, introduced in the second half. As a
result, unit sales of digital cameras grew by more than 20% compared with the previous year.
Digital cameras accounted for 72% and 69% and conventional film cameras accounted for 17% and 16%
of camera sales in fiscal 2005 and 2004, respectively. In the field of digital video camcorders,
newly introduced Mini DV, DVD, and HDV models, including the Optura 600, the DC20/10, and the XL H1
registered strong performances. Video camcorders accounted for the remaining 11% and 15% of camera
sales in fiscal 2005 and 2004, respectively. Sales of cameras constituted 23.4% of consolidated net
sales in fiscal 2005.
Sales of optical and other products increased 17.6%, to Yen 372,604 million. In the optical
and other products segment, demand for steppers, used in the production of semiconductors, has
continued to lag since the summer of 2004, resulting in a drop in the number of units sold and,
consequently, a decrease in sales value. Sales of aligners, however, which are used in the
production of LCD panels realized notable growth in terms of both volume and value owing to
increased investments by LCD manufacturers in response to the rapidly expanding LCD television
market. Additionally, the vacuum thin-film deposition and processing equipment produced by the
Company's newly consolidated subsidiaries contributed to expanded sales. Sales of optical and
other products constituted 9.9% of consolidated net sales in fiscal 2005.
Sales by region
A summary of net sales by region in fiscal 2005 and fiscal 2004 is provided below:
2005
Change
2004
(Millions of yen, except percentage data)
Japan
¥
856,205
+0.8
%
¥
849,734
Americas
1,145,950
+8.2
1,059,425
Europe
1,181,258
+8.0
1,093,295
Others
570,778
+22.6
465,399
Total
¥
3,754,191
+8.3
%
¥
3,467,853
Note: This summary of net sales by region of destination is determined by the location of the customer.
A geographical analysis indicates that net sales in fiscal 2005 increased in every region.
In Japan, net sales increased by 0.8% in fiscal 2005 from fiscal 2004. The results were mainly
attributable to increased sales of office imaging products, computer peripherals, and digital
cameras. Color network digital MFDs which include the Color
imageRUNNER("iR") C3170/2570 series,
equipped with a new high-speed image-processing chip, and the iR C3220/2620 series lineup, have
contributed to increased sales of office imaging products.
In the Americas, net sales increased by 5.7% on a local currency basis, mainly due to
increased sales of digital cameras, and laser beam printers. Sales of digital cameras experienced
continued strong demand and benefited from the effect of newly-launched products such as
PowerShot-series models and Canon's digital SLR. On a yen basis, after accounting for the
appreciation of the yen against the U.S. dollar, net sales in the Americas increased by 8.2%.
In Europe, net sales increased by 6.1% on a local currency basis mainly due to increased sales
of digital cameras and laser beam printers. On a yen basis, after accounting for the depreciation
of the yen against the euro, net sales in Europe grew 8.0% in fiscal 2005.
Sales in other areas increased by 22.6% on a yen basis in fiscal 2005, reflecting overall
sales growth, particularly in digital cameras and semiconductor equipment.
Operating profit by product
Operating profit for business machines in fiscal 2005 increased Yen 20,944 million to Yen
542,028 million. The gross profit ratio remained at a previous year level, due to cost reduction
efforts, and the sales-to-expense ratio declined, contributing to an increase in operating profit.
Operating
profit for cameras increased Yen 42,908 million to Yen 173,706 million. The gross
profit ratio improved, due to an increase in unit sales of digital cameras.
Optical and other products in fiscal 2005 increased Yen 9,988 million to Yen 38,820 million.
The gross profit ratio increased compared to the previous year, due to an increase in sales of
aligners.
28
Table of Contents
Fiscal 2004 compared with fiscal 2003
Summarized results of operations for fiscal 2004 and fiscal 2003 are as follows:
2004
Change
2003
(
Millions of yen, except per share
amounts and percentage data)
Net sales
¥
3,467,853
+8.4
%
¥
3,198,072
Operating profit
543,793
+19.7
454,424
Income before income taxes and minority interests
552,116
+23.2
448,170
Net income
343,344
+24.5
275,730
Net income per share:
Basic
387.80
+23.6
313.81
Diluted
386.78
+24.5
310.75
Note: See
note of Item 3A "Selected Financial Data."
Sales
Canon's consolidated net sales in fiscal 2004 totaled Yen 3,467,853 million. This represents
an 8.4% increase from the previous fiscal year, reflecting significant growth in sales of digital
cameras, color network digital MFDs and semiconductor-production equipment.
Overseas operations are significant to Canon's operating results and generated approximately
73% of total net sales in fiscal 2004. Such sales are denominated in the applicable local currency
and are subject to fluctuations in the value of the yen in relation to such other currencies.
Despite efforts to reduce the impact of currency fluctuations on operating results, including
localizing some manufacturing and procuring parts and materials from overseas suppliers, Canon
believes such fluctuations have had and will continue to have a significant effect on results of
operations.
The average value of the yen in fiscal 2004 was Yen 108.12 to the U.S. dollar, and Yen 134.57
to the euro, representing an appreciation of 7% against the U.S. dollar, and a depreciation of 3%
against the euro, compared with the previous year. These effects of foreign exchange rate
fluctuations unfavorably impacted net sales by approximately Yen 57,000 million. Net sales
denominated in foreign currency decreased by approximately Yen 77,700 million in U.S. dollars,
increased by Yen 20,300 million in euro, and increased by Yen 400 million in other foreign
currencies.
Cost of sales
Cost of sales principally reflects the cost of raw materials, parts and labor used by Canon in the
manufacture of its products. A portion of the raw materials used by Canon is imported or includes
imported materials. Such raw materials are subject to fluctuations in world market prices and
exchange rates that may affect Canon's cost of sales. Other components of cost of sales include
depreciation expenses from plants, maintenance expenses, light and fuel expenses and rent expenses.
The ratio of cost of sales to net sales for fiscal 2004 and 2003 was 50.6% and 49.7%, respectively.
Gross profit
Canon's gross profit in fiscal 2004 increased by 6.5% to Yen 1,713,343 million from fiscal
2003. Despite ongoing efficiency enhancements in production during fiscal 2004 and the timely
launch of competitive new products, the gross profit ratio decreased 0.9% from the previous year to
49.4%, mainly due to severe price competition and the appreciation of the yen against the U.S.
dollar.
Selling, general and administrative expenses and research and development expenses
The major components of selling, general and administrative expenses are payroll, R&D,
advertising expenses and other marketing expenses. Selling, general and administrative expenses in
fiscal 2004 increased by 1.3%, as compared with fiscal 2003, to Yen 1,169,550 million in fiscal
2004. This increase primarily reflects an increase in R&D expenditures by 6.2% to Yen 275,300
million, reflecting management's policy to maintain a high level of R&D expenditure to strengthen
Canon's R&D capabilities and an increase in advertising and other marketing expense by 11.5% to Yen
111,770 million, reflecting management's policy to strengthen Canon's corporate and brand image.
This increase was partially offset by a decrease in other selling, general and administrative
expenses and a Yen 17,141 million gain realized from the return to the Japanese Government of a
portion of the Employees' Pension Funds (EPF) of the Company and certain of its subsidiaries in
Japan.
Operating profit
Operating profit in fiscal 2004 increased by 19.7% to Yen 543,793 million from fiscal 2003.
Operating profit in fiscal 2004 was 15.7% of net sales, compared with 14.2% in fiscal 2003.
Other income (deductions)
Other income (deductions) improved by Yen 14,577 million, attributable to gains from sales of
stock of subsidiary companies' shares which totaled Yen 9,082 million, along with a decrease in
currency exchange losses and improved equity gains (losses) of affiliated companies.
Income before income taxes and minority interests
Income before income taxes and minority interests in fiscal 2004 was Yen 552,116 million, a 23.2%
increase from fiscal 2003, and constituted 15.9% of net sales.
29
Table of Contents
Income taxes
Provision for income taxes increased by Yen 31,361 million from fiscal 2003, primarily as a
result of the increase in income before income taxes and minority interests. The effective tax rate
during fiscal 2004 declined by 1.2% compared with fiscal 2003.
Net income
Net income in fiscal 2004 increased by 24.5% to Yen 343,344 million, which exceeds the growth
rate of income before income taxes and minority interests due primarily the decrease in the
effective tax rate during the period. This represents a 9.9% return on net sales.
Product information
On a consolidated basis, Canon divides its businesses into three product groups: business
machines, cameras and optical and other products.
•
The business machines product group
includes office imaging products, computer peripherals
and business information products.
•
Office imaging products include office network digital MFDs, color network digital
MFDs, office copying machines, personal-use copying machines and full-color copying
machines.
•
Computer peripherals include laser beam printers, inkjet printers, inkjet multifunction
peripherals and image scanners.
•
Business information products include micrographic equipment, personal computers and
calculators.
•
The cameras product group
includes single lens reflex ("SLR") cameras, compact cameras,
digital cameras and digital video camcorders.
•
The optical and other products product group
includes steppers for semiconductor chip
production, mirror projection mask aligners used in the production of LCDs, television
broadcasting lenses and medical equipment.
Effective January 2004, Canon has changed the classification of its information system
business. The information system business which had been included in "Optical and other products",
was reclassified as "Business machines (Office imaging products)" in order to better reflect its
relation with the other products of the business machines group. Accordingly, information for
previous fiscal years has been reclassified to conform with the current classification.
Sales by product
Canon's sales by product group are summarized as follows:
2004
Change
2003
(Millions of yen, except percentage data)
Business machines:
Office imaging products
¥
1,120,972
+3.6
%
¥
1,081,995
Computer peripherals
1,149,914
+5.6
1,089,312
Business information products
117,067
-5.2
123,493
Total business machines
2,387,953
+4.1
2,294,800
Cameras
763,079
+16.8
653,540
Optical and other products
316,821
+26.9
249,732
Total
¥
3,467,853
+8.4
%
¥
3,198,072
Sales of business machines, constituting 69% of consolidated net sales, increased 4.1%, to Yen
2,387,953 million in fiscal 2004.
Sales of office imaging products increased 3.6%, to Yen 1,120,972 million
.
Demand for network
digital MFDs continues to shift from monochrome machines to color models, as well as towards
higher-end features. The Color imageRUNNER(iR) C3200/iRC3200N recorded strong sales in both the
domestic Japanese and overseas markets. The iRC3100 and the high end model iRC6800, introduced in
Japan in the second half of fiscal 2003, were also launched in Europe and the United States in the
first half of fiscal 2004 and have also recorded strong sales. The iRC3220/iRC3220N, which succeeds
the iRC3200, and the iRC2620/iRC2620N were launched in September 2004 and have also recorded strong
sales. 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. Color office imaging
products accounted for 24% and 20% and monochrome office imaging products accounted for 62% and 67%
of office imaging products sales in fiscal 2004 and 2003, respectively. Sales of facsimiles and
information system business accounted for 14% and 13% of sales of office imaging products in both
fiscal 2004 and 2003.
Sales of computer peripherals increased 5.6% to Yen 1,149,914 million. 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 and color segment, laser beam printer sales substantially increased due to an
increase in sales of color models. Inkjet printers recorded an approximately 20% increase in unit
sales, primarily as a result of sales of the PIXMA iP3100 and iP4100 models, especially in Japan
and Europe, and the PIXMA MP700 and MultiPASS MP370 high-speed multifunction systems. The adverse
effect of severe price competition on sales of computer peripherals was more than offset by a rise in unit sales.
Sales of business information products decreased 5.2%, to Yen 117,067 million in fiscal 2004,
mainly due to the intentional curtailing of personal computer sales in the domestic market.
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Table of Contents
Sales of cameras continued to achieve significant sales growth of 16.8%, totaling Yen 763,079
million. 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 for
fiscal 2004, including the PowerShot S500 Digital ELPH and PowerShot A75. Canon's digital SLR
cameras also continued to enjoy robust growth, bolstered by strong sales of the EOS Digital Rebel,
and the EOS 20D which is successor of the EOS 10D. As a result, unit sales of digital cameras grew
by nearly 60% compared with the previous year. Digital cameras accounted for 69% and 61% and
conventional film cameras accounted for 16% and 21% of camera sales in fiscal 2004 and 2003,
respectively. Video camcorders accounted for the remaining 15% and 18% of camera sales in fiscal
2004 and 2003, respectively. In the field of digital video camcorders, new models such as the
Optura 500/400, Elura 70/65/60 and Optura 40/30 achieved favorable sales during fiscal 2004. Sales
of cameras constituted 22% of consolidated net sales in fiscal 2004, an increase of 2% from fiscal
2003, primarily due to increased sales of digital cameras.
Sales of optical and other products increased by 26.9%, to Yen 316,821 million. Sales of
aligners for the production of LCDs realized notable growth as the PC monitor industry continued to
shift from cathode-ray tube (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. Sales of optical and other products constituted 9% of
consolidated net sales in fiscal 2004, an increase of 1% from fiscal 2003, primarily due to
increased sales of aligners for LCDs and steppers.
Sales by region
A summary of net sales by region in fiscal 2004 and fiscal 2003 is provided below:
2004
Change
2003
(Millions of yen, except percentage data)
Japan
¥
849,734
+6.0
%
¥
801,400
Americas
1,059,425
+1.4
1,045,166
Europe
1,093,295
+12.8
969,042
Others
465,399
+21.7
382,464
Total
¥
3,467,853
+8.4
%
¥
3,198,072
Note: This summary of net sales by region of destination is determined by the location of the
customer.
A geographical analysis indicates that net sales in fiscal 2004 increased in every region.
In Japan, net sales increased by 6.0% in fiscal 2004 from fiscal 2003. The results were mainly
attributable to increased sales of office imaging products and digital cameras. Color network
digital MFDs, which include the Color imageRUNNER("iR") C3200/iRC3200N, Canon's first color
offering in the powerful imageRUNNER-series lineup, have contributed to increased sales of office
imaging products.
In the Americas, net sales increased by 8.3% on a local currency basis, mainly due to
increased sales of digital cameras, and laser beam printers. Sales of digital cameras experienced
continued strong demand and benefited from the effect of newly-launched products such as
PowerShot-series models and Canon's digital SLR. On a yen basis, after accounting for the
appreciation of the yen against the U.S. dollar, net sales in the Americas increased by 1.4%.
In Europe, net sales increased by 11.6% on a local currency basis mainly due to increased
sales of digital cameras, Color network digital MFDs and laser beam printers. On a yen basis, after
accounting for the depreciation of the yen against the euro, net sales in Europe grew 12.8% in
fiscal 2004.
Sales in other areas increased by 21.7% on a yen basis in fiscal 2004, reflecting overall
sales growth, particularly in digital cameras and semiconductor equipment.
Operating profit by product
Operating profit for business machines in fiscal 2004 increased Yen 35,519 million to Yen
521,084 million. Despite the effects of the stronger yen, the gross profit ratio (ratio of gross
profit to net sales) remained at prior year levels, due to cost reduction efforts, and the
sales-to-expense ratio declined, contributing to an increase in operating profit.
Operating profit for cameras increased Yen 4,480 million to Yen 130,798 million. Despite the
negative effects of the stronger yen and price competition, along with the impact of increased
advertising and sales-promotion spending, an increase in unit sales of digital cameras contributed
to improved profitability.
Optical and other products generated operating profits of Yen 28,832 million in fiscal 2004,
as compared to losses of Yen 9,883 million in fiscal 2003, due to a significant increase in sales
of aligners and steppers.
31
Table of Contents
Segment information by product and geographic area
Segment information by product and by geographic area for the years ended December 31, 2005,
2004 and 2003 are shown below.
The following table provides segment information by product:
As of/for the year ended December 31, 2005
Optical
Business
and other
Corporate and
machines
Cameras
products
Eliminations
Consolidated
(Millions of yen)
Net sales:
Unaffiliated customers
¥
2,502,401
¥
879,186
¥
372,604
—
¥
3,754,191
Intersegment
—
—
158,114
¥
(158,114
)
—
Total
2,502,401
879,186
530,718
(158,114
)
3,754,191
Operating cost and expenses
1,960,373
705,480
491,898
13,397
3,171,148
Operating profit
¥
542,028
¥
173,706
¥
38,820
¥
(171,511
)
¥
583,043
Assets
¥
1,427,277
¥
480,957
¥
517,527
¥
1,617,792
¥
4,043,553
Depreciation and amortization
123,037
27,662
28,011
47,231
225,941
Capital expenditure
201,887
57,678
15,955
108,264
383,784
As of/for the year ended December 31, 2004
Optical
Business
and other
Corporate and
machines
Cameras
products
Eliminations
Consolidated
(Millions of yen)
Net sales:
Unaffiliated customers
¥
2,387,953
¥
763,079
¥
316,821
—
¥
3,467,853
Intersegment
—
—
138,419
¥
(138,419
)
—
Total
2,387,953
763,079
455,240
(138,419
)
3,467,853
Operating cost and expenses
1,866,869
632,281
426,408
(1,498
)
2,924,060
Operating profit
¥
521,084
¥
130,798
¥
28,832
¥
(136,921
)
¥
543,793
Assets
¥
1,338,817
¥
399,207
¥
418,418
¥
1,430,579
¥
3,587,021
Depreciation and amortization
115,830
21,880
24,895
30,087
192,692
Capital expenditure
134,128
39,783
52,264
92,555
318,730
As of/for the year ended December 31, 2003
Optical
Business
and other
Corporate and
machines
Cameras
products
Eliminations
Consolidated
(Millions of yen)
Net sales:
Unaffiliated customers
¥
2,294,800
¥
653,540
¥
249,732
—
¥
3,198,072
Intersegment
—
—
132,389
¥
(132,389
)
—
Total
2,294,800
653,540
382,121
(132,389
)
3,198,072
Operating cost and expenses
1,809,235
527,222
392,004
15,187
2,743,648
Operating profit
¥
485,565
¥
126,318
¥
(9,883
)
¥
(147,576
)
¥
454,424
Assets
¥
1,266,881
¥
317,672
¥
412,117
¥
1,185,478
¥
3,182,148
Depreciation and amortization
118,806
17,712
20,276
26,810
183,604
Capital expenditure
106,013
25,894
31,170
46,961
210,038
Notes:
(1)
General corporate expenses of Yen 171,522 million, Yen 136,929 million and Yen 147,616
million in the years ended December 31, 2005, 2004 and 2003, respectively, are included in
"Corporate and Eliminations." For the fiscal year ended December 31, 2004, a gain of Yen
17,141 million is also included, which relates to the Transfer to the Japanese Government of
the Substitutional Portion of Employee Pension Fund Liabilities.
(2)
Corporate assets of Yen 1,239,255 million, Yen 1,430,599 million and Yen 1,185,506 million as
of December 31, 2005, 2004 and 2003, respectively, which mainly consist of cash and cash
equivalents, marketable securities, investments and corporate properties, are included in
"Corporate and Eliminations."
(3)
The segments are defined under Japanese GAAP. In grouping of segment information by product,
Japanese GAAP requires that consideration be given to similarities of product types and
characteristics, manufacturing methods, sales markets, and other factors that are similar.
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Table of Contents
The following table provides segment information by geographic area:
As of/for the year ended December 31, 2005
Corporate and
Japan
Americas
Europe
Others
Eliminations
Consolidated
(Millions of yen)
Net sales:
Unaffiliated customers
¥
979,748
¥
1,139,784
¥
1,178,672
¥
455,987
—
¥
3,754,191
Intersegment
2,046,173
7,424
2,206
646,530
¥
(2,702,333
)
—
Total
3,025,921
1,147,208
1,180,878
1,102,517
(2,702,333
)
3,754,191
Operating cost and expenses
2,362,019
1,110,415
1,147,658
1,071,155
(2,520,099
)
3,171,148
Operating profit
¥
663,902
¥
36,793
¥
33,220
¥
31,362
¥
(182,234
)
¥
583,043
Assets
¥
2,419,012
¥
406,101
¥
569,750
¥
312,472
¥
336,218
¥
4,043,553
As of/for the year ended December 31, 2004
Corporate and
Japan
Americas
Europe
Others
Eliminations
Consolidated
(Millions of yen)
Net sales:
Unaffiliated customers
¥
919,153
¥
1,057,066
¥
1,090,712
¥
400,922
—
¥
3,467,853
Intersegment
1,882,973
8,863
4,161
591,677
¥
(2,487,674
)
—
Total
2,802,126
1,065,929
1,094,873
992,599
(2,487,674
)
3,467,853
Operating cost and expenses
2,206,141
1,025,628
1,071,552
965,080
(2,344,341
)
2,924,060
Operating profit
¥
595,985
¥
40,301
¥
23,321
¥
27,519
¥
(143,333
)
¥
543,793
Assets
¥
1,793,679
¥
341,616
¥
533,865
¥
271,566
¥
646,295
¥
3,587,021
As of/for the year ended December 31, 2003
Corporate and
Japan
Americas
Europe
Others
Eliminations
Consolidated
(Millions of yen)
Net sales:
Unaffiliated customers
¥
856,851
¥
1,044,998
¥
968,938
¥
327,285
—
¥
3,198,072
Intersegment
1,662,172
8,101
3,861
503,119
¥
(2,177,253
)
—
Total
2,519,023
1,053,099
972,799
830,404
(2,177,253
)
3,198,072
Operating cost and expenses
2,025,442
998,492
946,282
806,281
(2,032,849
)
2,743,648
Operating profit
¥
493,581
¥
54,607
¥
26,517
¥
24,123
¥
(144,404
)
¥
454,424
Assets
¥
1,600,726
¥
306,140
¥
546,625
¥
249,755
¥
478,902
¥
3,182,148
Notes:
(1)
General corporate expenses of Yen 171,522 million, Yen 136,929 million and Yen 147,616
million in the years ended December 31, 2005, 2004 and 2003, respectively, are included in
"Corporate and Eliminations." For the fiscal year ended December 31, 2004, a gain of Yen
17,141 million is also included, which relates to the Transfer to the Japanese Government of
the Substitutional Portion of Employee Pension Fund Liabilities.
(2)
Corporate assets of Yen 1,239,255 million, Yen 1,430,599 million and Yen 1,185,506 million as
of December 31, 2005, 2004 and 2003, respectively, which
mainly consist of cash and cash equivalents, marketable securities, investments and corporate
properties, are included in "Corporate and Eliminations."
(3)
Segment information by geographic area is determined by the location of the Company or its
relevant subsidiary making the sale. The segments are defined under Japanese GAAP. In grouping
of segment information by geographic area, Japanese GAAP requires that consideration be given
to geographic proximity, as well as similarities of economic activities, interrelationships of
business activities and other similar factors.
33
Table of Contents
Foreign operations and foreign currency transactions
Canon's marketing activities are performed by subsidiaries in various regions in local
currencies, while the cost of sales is generally in yen. Given Canon's current operating structure,
appreciation of the yen has a negative impact on net sales and the gross profit ratio. To reduce
the financial risks from changes in foreign exchange rates, Canon utilizes derivative financial
instruments, which are comprised principally of forward currency exchange contracts.
The return on foreign operation sales is usually lower than that from domestic operations
because foreign operations consist mainly of marketing activities. Return on foreign operation
sales is calculated by dividing net income of foreign subsidiaries, after factoring in
consolidation adjustments between foreign subsidiaries, by net sales of foreign subsidiaries.
Marketing activities are generally less profitable than production activities, which are mainly
conducted by the Company and its domestic subsidiaries. The returns on foreign operation sales in
fiscal 2005, 2004 and 2003 were 3.0%, 2.8% and 3.2%, respectively. This compares with returns of
10.2%, 9.9% and 8.6% on total operations for the respective years.
Recent developments
Canon acquired all of the issued and outstanding shares of ANELVA Corporation, which possesses
advanced vacuum technology, and made it into a subsidiary as of September 30, 2005. ANELVA
Corporation's corporate name was changed to Canon ANELVA Corporation as of October 1, 2005. By
making Canon ANELVA Corporation a subsidiary of the Company, Canon aims to promote the in-house
production of manufacturing equipment which Canon believes is indispensable to differentiate Canon
products from products of its competitors in various fields, including Canon's new display
business.
Canon acquired the shares of NEC Machinery Corporation (listed on the Second Section of the
Osaka Securities Exchange), which possesses advanced automation technologies, through a tender
offer and made it into a subsidiary as of October 19, 2005. NEC Machinery Corporation's corporate
name was changed to Canon Machinery Inc. as of December 17, 2005. By making Canon Machinery Inc. a
subsidiary of the Company, Canon aims to make further advance in its production reform activities,
including the automation of production processes for Canon products.
B. Liquidity and capital resources
Cash and cash equivalents in fiscal 2005 increased Yen 117,179 million to Yen 1,004,953
million, compared with Yen 887,774 million in fiscal 2004 and Yen 690,298 million in fiscal 2003.
Canon's cash and cash equivalents are typically denominated in Japanese yen, with the remainder
denominated in foreign currencies such as the U.S. dollar.
Net cash provided by operating activities in fiscal 2005 increased by Yen 44,149 million from
the previous year to Yen 605,678 million, reflecting the substantial growth in sales and increased
cash proceeds from sales, combined with a substantial increase in net income and an improvement in
working capital. Cash flow from operating activities consisted of the following components: the
major component of Canon's cash inflow is cash received from customers, while the major components
of Canon's cash outflow are payments for parts and materials, selling, general and administrative
expenses, and income taxes.
For fiscal 2005, cash inflow from cash received from customers increased, due to the increase
in net sales. This increase in cash inflow was within the range of the increase in net sales, as
there were no significant changes in Canon's collection rates. Cash outflow for payments for parts
and materials also increased, as a result of an increase in net sales. However, this increase was
less than the increase in net sales, due to the effects of cost reduction. Cost reduction reflects
a decline in unit prices of parts and raw materials, as well as a streamlining of the process of
using these parts and materials through promoting efficiency in operations. Cash outflow for
payroll payments increased, due to the increase in the number of employees. The employees in the
Asian region increased, due to the expansion of production in the regions. Cash outflow for
payments for selling, general and administrative expenses increased, but the increase was within
the range of the increase in net sales, due to cost-cutting efforts. Cash outflow for payments of
income taxes increased, due to the increase in taxable income.
Net cash used in investing activities in fiscal 2005 was Yen 401,141 million, compared with
Yen 252,967 million in fiscal 2004 and Yen 199,948 million in fiscal 2003, consisting primarily of
capital expenditures. Capital expenditures in fiscal 2005 totaled Yen 383,784 million, which was
used mainly to expand production capabilities in Japan and overseas regions and to strengthen the
Company's R&D-related infrastructure. As a result, free cash flow, or cash flow from operating
activities minus cash flow from investing activities, totaled Yen 204,537 million for fiscal 2005
as compared to Yen 308,562 million for fiscal 2004.
Net cash used in financing activities totaled Yen 93,939 million in fiscal 2005, mainly
resulting from a decrease in loan repayments accompanying the company's strengthened financial
position despite a large increase in the dividend payout. The Company paid dividends in fiscal 2005
of Yen 100 per share, which was an increase of Yen 35 per share over the prior year.
Canon seeks to meet its liquidity and capital requirements principally with cash flow from
operations. Consistent with this objective, Canon continued to reduce its reliance on external
funding for capital investments in favor of relying upon internally generated cash flows. This
approach is supplemented with group-wide treasury and cash management activities undertaken at the
parent company level. Canon believes that its working capital is sufficient for its present
requirements.
To the extent Canon relies on external funding for its liquidity and capital requirements, it
generally has access to various funding sources, including issuance of additional share capital,
long-term debt or short-term loans. While Canon has been able to obtain funding from its
traditional financing sources and from the capital markets, and believes it will continue to be
able to do so in the future, there can be no assurance that adverse economic or other conditions
will not affect Canon's liquidity or long-term funding in the future.
Short-term loans (including current portion of long-term debt) amounted to Yen 5,059 million
at December 31, 2005 compared to Yen 9,879 million at December 31, 2004. Long-term debt (excluding
their current portions) amounted to Yen 27,082 million at December 31, 2005 compared to Yen 28,651
million at December 31, 2004.
Canon's long-term debt generally consists of secured or partially-secured term loans from
banks, bearing interest at fixed rates, lease obligations, as well as
fixed-rate notes and convertible debentures which Canon has issued in the domestic market with
original maturities of ten to fifteen years.
In order to facilitate access to global capital markets, Canon obtains credit ratings from two
rating agencies, Moody's Investors Services, Inc. ("Moody's") and Standard and Poor's Rating
Services ("S&P"). In addition, Canon maintains a rating from Rating and Investment Information,
Inc. ("R&I"), a rating agency in Japan, for access to the Japanese capital market.
As of December 31, 2005, Canon's debt ratings are: Moody's: Aa2 (long-term); S&P: AA
(long-term), A-1+ (short-term); and R&I: AA+ (long-term). Canon does not have any rating downgrade
triggers that would accelerate the maturity of a material amount of its debt. A downgrade in
Canon's credit ratings or outlook could, however, increase the cost of its borrowings.
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Table of Contents
Capital expenditure in fiscal 2005 amounted to Yen 383,784 million compared with Yen 318,730
million in fiscal 2004 and Yen 210,038 million in fiscal 2003. In fiscal 2005, capital expenditures
were mainly used to expand production capabilities in both domestic and overseas regions, and to
bolster the Company's R&D-related infrastructure. In addition, Canon has been continually investing
in tools and dies for business machines, in which the amount invested is generally the same each
year. For fiscal 2006, Canon projects its capital expenditures will be approximately Yen 465,000
million. The capital expenditures include investments in new production plants and new facilities
of Canon.
Employer contributions to Canon's worldwide defined benefit pension plans were Yen 40,059
million in fiscal 2005, Yen 31,018 million in fiscal 2004, Yen 29,944 million in fiscal 2003.
During fiscal 2006, Canon expects to make cash contributions of approximately Yen 45,352 million to
its defined benefit pension plans.
Working capital in fiscal 2005 increased Yen 130,954 million, to Yen 1,379,941 million,
compared with Yen 1,248,987 million in fiscal 2004 and Yen 1,103,474 million in fiscal 2003. This
increase was primarily a result of an increase in cash and cash equivalents. Canon believes its
working capital will be sufficient for its requirements for the foreseeable future. Canon's capital
requirements are primarily dependent on management's business plans regarding the levels and timing
of capital expenditures and investments. The working capital ratio (ratio of current assets to
current liabilities) for fiscal 2005 was 2.28 compared to 2.27 for fiscal 2004 and 2.33 for fiscal
2003.
Return on assets (Net income divided by the average of total assets as of December 31, 2005, 2004
and 2003) recorded 10.1% in fiscal 2005, compared to 10.1% in fiscal 2004 and 9.0% in fiscal 2003.
Return on stockholders' equity was 16.0% in fiscal 2005 compared with 16.8% in fiscal 2004 and
15.9% in fiscal 2003.
Debt to total assets ratio was 0.8%, 1.1% and 3.1% as of December 31, 2005, 2004 and 2003,
respectively. Canon had short-term loans and long-term debt of Yen 32,141 million as of December
31, 2005, Yen 38,530 million as of December 31, 2004 and Yen 98,396 million as of December 31,
2003.
C. Research and development, patents and licenses
Year 2005 marks the final year of Phase II of the Excellent Global Corporation Plan, which started
in 2001. The plan aims to guide Canon to the No.1 position worldwide in all core business areas and
to build on its R&D capabilities to continually create new businesses. While working to bring Phase
II to a successful conclusion, Canon is also making thorough preparations to pursue sound growth,
its new target for Phase III, which begins in 2006.
With respect to its R&D goals, Canon formulated a vision, which is to create a borderless
environment between people and devices where images and information are exchanged in a way that
lets us live and work the way we want, virtually anytime, anywhere. Toward the realization of its
vision, Canon has accelerated the development and commercialization of display devices. In
particular, Canon has developed SED devices with the aim of mass production at SED Inc.,
established in 2004. In addition, Canon has strengthened its R&D of such items as projectors and
organic light-emitting diodes ("
OLEDs
"). Furthermore, Canon continues to promote activities giving
rise to its next-generation businesses pursuing its search for new business domains, as well as to
reinforce its R&D infrastructure.
In regard to its R&D efficiencies, Canon has utilized of 3D-CAD systems, in order to
accelerate product development and curtail costs. Moreover, Canon enhanced and evolved its
simulation, measurement and analysis technologies, introducing a high-performance cluster computer
and other leading-edge facilities in 2005. As such, Canon has succeeded in greatly reducing the
need for prototypes, dramatically lowering costs and shortening development lead times.
Canon has R&D centers worldwide, including the USA, that closely collaborate in their R&D
activities. Some regional R&D centers conduct basic research into technology, and others apply
their expertise to develop new products and businesses.
The Company's R&D activities are conducted in the following four organizations:
•
Core Technology Development Headquarters (where component engineering and base
technology R&D, such as optics technology, nanotechnology and production engineering, is
conducted)
•
Leading-Edge Technology Development Headquarters (where most advanced technology
R&D, aiming to create new technological capabilities, is conducted)
•
Platform Technology Development Headquarters (where platform technology R&D, such
as system Large Scale Integration ("LSI") chips, network technology and visual information
technology, is conducted)
•
Device Technology Development Headquarters (where key device R&D, such as for
semiconductor devices, is conducted)
Canon had R&D expenditures of Yen 286,476 million in fiscal 2005, Yen 275,300 million in
fiscal 2004 and Yen 259,140 million in fiscal 2003. The ratios of R&D expenditure to total net
sales for fiscal 2005, 2004 and 2003 were 7.6%, 7.9% and 8.1%, respectively.
Canon believes that new products protected by seminal patents will not easily allow
competitors to catch up with, and have advantages in establishing standards in the market and the
industry. The United States Patent and Trademark Office announced that Canon obtained the
second-greatest number of private sector patents in 2005. This achievement marks Canon's fourteenth
consecutive year as one of the top three patent-receiving private-sector organizations.
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D. Trend information
Trend information
Through Phase I (1996 to 2000) and Phase II (2001 to 2005) of its "Excellent Global
Corporation Plan," the Canon Group pursued total optimization. Under the policy of putting profits
ahead of sales, we pushed forward selection and concentration measures and, amid ongoing product
digitalization, worked to enhance our product competitiveness and establish corporate structure for
high profitability.
The business environment the Canon Group will face in the future will likely be characterized
by ongoing economic globalization against the background of stable economic growth at the global
level, as well as further adoption of broadband network and explosive growth of the digital imaging
business sector.
Viewing these conditions as a business opportunity, the Canon Group will continuously try to
boldly apply the operational, technological, personnel, financial and other business resources it
has built up in ways that make further sound growth possible. Toward that end, we have formulated a
new five-year plan — Phase III (2006 to 2010) of our "Excellent Global Corporation Plan."
Chief among the priority strategies contained in this plan is making all of our current core
businesses the overwhelming No.1 position and establishing our display technologies as businesses,
a major new business for the Canon Group. And we aim to review our production systems in Japan
through steps like the introduction and promotion of high-productivity automated systems, and we
will establish new production systems to sustain international competitiveness. We will also
expand our business operations through diversification and establish a Three Regional Headquarters
System based in Japan, the U.S. and Europe, identify new business domains and accumulate the
required technologies. Furthermore, we will also focus on nurturing strong individuals promoting
these everlasting corporate reforms.
By forcefully advancing these priority strategies, the Canon Group aims to create business
operations that can prosper in perpetuity and make us a truly excellent global corporation.
Business machines segment
Office imaging products
In the office imaging products segment, it has become more important to provide added value in
the form of networking, integration, color printing, and multifunction models. Also, in addition to
the mid segment products for office market which enjoys steady growth, Canon expects that the
market of higher-end models and low-end multifunction models will expand as well. The market for
color digital devices continued to grow rapidly, and sales of monochrome digital MFDs were stable,
reflecting the market trend shifting from single-function to multifunction. Recently, there has
been a new, printer-based MFP market created by other printer vendors as they seek to enter the
copier and MFD market.
To maintain and enhance a competitive edge and to meet more sophisticated customer demands,
Canon is strengthening its marketing capabilities by reinforcing its hardware and software product
lineups and by improving functionality. In 2005, Canon strengthened the product lineups of its
color digital devices in addition to its existing full line of monochrome machines and maintained
its market share by executing business strategies in line with the current market trend.
While competitors seek to transfer manufacturing facilities to China, Canon regards its
manufacturing bases in Japan important, in order to reduce total cost, through strengthening and
reinforcing its technology, in particular through the collaboration of its R&D, manufacturing and
quality management divisions. In fiscal 2005, Canon established a new global mother factory in
Toride, to achieve the above-mentioned goal.
Computer peripheral products
The inkjet printer market continues to grow steadily. Canon expects a continuation of declines
in market prices, a shift from single-function printers to MFPs, and an expansion of the digital
photo market. To manage these trends, Canon has established a line of MFPs from flagship to entry
models in order to expand its printer sales.
Canon's laser beam printer business holds a strong position in the market. In the monochrome
laser beam printer market, Canon expects that the transition to a low price segment will expand
sales in the micro-business/home office market and in the emerging markets. In the color laser beam
printer market, Canon expects continued strong growth in demand. In general, competition will
become more intense as competitors implement aggressive price strategies in order to establish
themselves as market leaders. Canon seeks to remain competitive by developing technologies that can
be deployed in a timely fashion to produce innovative products in all segments. Canon is also
working to lower costs by automating production of consumables and to secure procurement of
essential parts through internal sourcing.
Although Canon expects that the size of the scanner market will continue to contract, the
stylish and compact CanoScan LiDE series and Hyper CCD models with ultrahigh-resolution were both
introduced in fiscal 2005 in order to increase Canon's share of this market.
The size of the worldwide facsimile market has remained stable, as expansion in Asia, mainly
China, has offset declines in other regions. Due to price declines for inkjet MFPs with facsimile
function, prices are also declining for stand-alone machines.
Business information products
With regard to personal computers, demand from corporate clients in the Japanese market held
steady in fiscal 2005, but a decline in sales was caused by Canon's change in marketing strategy
from selling single products to a solutions business involving the proposal of unique combinations
of various products. This trend is expected to continue in fiscal 2006.
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Cameras segment
The entire digital camera market continues to expand. While the growth rate has slowed in
Japan and the United States, emerging markets, especially China and Eastern Europe, have
experienced strong growth. In addition, the emergence of new photo imaging systems has contributed
to this growth as well, such as PC-free direct printing systems, by expanding the digital imaging
functionality through network connectivity, along with the improvement of the user-friendly image
processing interfaces and software.
The digital camera industry is seeing growth on various fronts. As with most other digital
consumer electronics, the digital camera market is now confronted with a fierce price war and
intensified technological competition in terms of picture quality and functions. Profit margins
have been shrinking for the overall industry, but Canon has been able to maintain higher margins
through reforms of its production and procurement systems.
Canon expects the market for compact digital cameras to expand in the intermediate term.
However, profit margins for the overall industry are moving lower as prices fall and competition
increases. Therefore, Canon plans to continue cutting production costs while expanding our presence
in terms of quantity.
There are signs of rapid growth in the market for compact photo printers, which present a new
business opportunity. By creating a strong product line over the mid-term, Canon believes that it
will be able to take a significant role in this market and turn the compact photo printer business
into a new earnings source for Canon.
Canon played a major role in the continued expansion of the digital SLR market in fiscal 2005.
This market is expected to continue growing for the time being. However, Canon expects the growth
rate to fall once this new demand has peaked.
The market for film cameras is contracting as a result of the rapid shift to digital cameras.
Canon anticipates this trend to continue, both for film SLR cameras and for film
compact cameras.
Canon expects the interchangeable lens market to grow as a result of the rapid market
penetration of digital SLR cameras. In response to the rapid growth of the SLR camera market, Canon
has strengthened its line of interchangeable lenses exclusively for digital SLR cameras, and
currently has five models in this market. Canon seeks to expand its sales and market share by
introducing products especially made for popular class digital SLR cameras.
For video camcorders, analog camcorder sales have been further replaced by sales of digital
camcorders in the United States in fiscal 2005, where the speed of transition used to be moderate.
Against this background two new trends have emerged in the market. First, the introduction of video
cameras using DVDs, HDDs, SD cards and other new forms of media has resulted in a trend in which
convenience offered by the products is more emphasized. Second, the trend towards higher picture
quality has evolved, provided by products using HDV and other high-resolution recording methods.
Canon believes that these two trends are stimulating the market by responding to more diverse user
needs and will likely contribute to further growth for the overall digital video market.
Canon will seek to continue sales growth with a stronger product line for the Mini DV market
as well as for the DVD and HDV market, while continuing to invest in R&D to follow new trends in
the market.
Canon expects that the market for liquid crystal projectors will continue to grow by about 20%
per year on a unit basis, while market prices will continue to decline, resulting in moderate
growth in monetary terms. Our independently developed SX50 high-resolution projector, which was
introduced at the end of last year, has been winning praise in the market thanks to its picture
quality and compact dimensions. This product is helping Canon capture a significant share of the
market for high-resolution projectors. Canon will continue to make distinctive products that meet
the demands of the projector market, such as greater brightness and resolution.
Optical and other products segment
Canon expects new orders for semiconductor-production equipment to increase in fiscal 2006, as
the market turns to the recovery phase following to the adjustment period in fiscal 2005. In
general, the trend toward high resolution and higher speed equipment will likely to continue in the
semiconductor industry. In order to manage theses trends, Canon
introduced the FPA-6000AS4 in fiscal
2004, and the FPA-6000ES6a in fiscal 2005. Canon will continue to focus on developing new products
in order to satisfy the semiconductor manufacturers who have various device patterns.
For fiscal 2005, sales of aligners for the production of LCDs realized significant growth as
the PC monitor industry continued to shift from CRT to LCD displays, and the LCD television market
continued to expand. However, in the LCD production mask aligner market, demand is expected to
decline gradually as the trend toward increased capital investment tapers off, and also due to the
timing of the release of the brand-new models scheduled sometime next year, the order is expected
to show a moderate decline.
The TV lens market is enjoying a gradual recovery thanks to the improving economy and new
demand as more broadcasting equipment switches over to digital. In fact, in 2005 the market
returned to roughly the same level seen four years ago just before the September 11. Growth in
demand for HDTV lenses until now has come mainly from Japan and the U.S., but Canon is now starting
to see greater demand in Europe as well. Canon also expects to see new demand in China and other
Asian markets thanks to the shift to digitalization. Though Canon already has a major market share
worldwide for this class of lens, it intends to continue to strengthen its position in this market.
Forward looking statements
The foregoing discussion and other disclosure in this report contains forward-looking
statements that reflect management's current views with respect to certain future events and
financial performance. Actual results may differ materially from those projected or implied in the
forward-looking statements. Further, certain forward-looking statements are based upon assumptions
of future events that may not prove to be accurate. The following important factors could cause
actual results to differ materially from those projected or implied in any forward-looking
statements: foreign currency exchange rate fluctuations; the uncertainty of Canon's ability to
implement its plans to localize production and other measures to reduce the impact of foreign
currency exchange rate fluctuations; uncertainty as to economic conditions, in Canon's major
markets; uncertainty of continued demand for Canon's high-value-added products; uncertainty as to
the recovery of computer and related markets; uncertainty of recovery in demand for Canon's
semiconductor production equipment; Canon's ability to continue to develop products and to market
products that incorporate new technology on a timely basis, are competitively priced and achieve
market acceptance; the possibility of losses resulting from foreign currency transactions designed
to reduce financial risks from changes in foreign currency exchange rates; and inventory risk due
to shifts in market demand.
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Table of Contents
E. Off-balance sheet arrangements
As part of its ongoing business, Canon does not participate in transactions that generate
relationships with unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have been established
for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes.
Canon provides guarantees to third parties of bank loans of its employees, affiliates and
other companies. Canon would have to perform under a guarantee, if the borrower defaults on a
payment within the contract periods of 1 year to 30 years in the case of employees with housing
loans, and of 1 year to 10 years in the case of affiliates and other companies. The maximum amount
of undiscounted payments Canon would have had to make in the event of default by all borrowers was
Yen 38,550 million at December 31, 2005. The carrying amounts of the liabilities recognized for
Canon's obligations as a guarantor under those guarantees are insignificant.
F. Contractual obligations
The following summarizes Canon's contractual obligations at December 31, 2005.
Payments Due By Period
Less than
More than
Total
1 year
1-3 years
3-5 years
5 years
Contractual Obligations:
Long-Term Debt:
Capital Lease Obligations
¥
8,784
4,159
4,064
538
23
Other Long-Term Debt
23,290
833
21,605
774
78
Operating Lease Obligations
52,589
14,571
18,693
9,823
9,502
Purchase commitments for :
Property Plant and Equipment
87,244
87,244
—
—
—
Parts and Raw Materials
67,831
67,831
—
—
—
Total
¥
239,738
174,638
44,362
11,135
9,603
Canon provides warranties generally less than one year against defects in materials and
workmanship on most of its consumer products. Estimated product warranty related costs are
established at the time revenue is recognized and are included in selling, general and
administrative expenses. Estimates for accrued product warranty cost are primarily based on
historical experience, and are affected by ongoing product failure rates, specific product class
failures outside of the baseline experience, material usage and service delivery costs incurred in
correcting a product failure. As of December 31, 2005, accrued product warranty costs amounted to
Yen 16,746 million.
At December 31, 2005, commitments outstanding for the purchase of property, plant and
equipment approximated Yen 87,244 million, and commitments outstanding for the purchase of parts
and raw materials approximated Yen 67,831 million, both for use in the ordinary course of its
business. Canon anticipates that funds needed to fulfill these commitments will be generated
internally through operations.
Canon's management believes that current financial resources, cash generated from operations
and Canon's potential capacity for additional debt and/or equity financing will be sufficient to
fund current and future capital requirements.
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Table of Contents
Item 6. Directors, Senior Management and Employees
A.
Directors and senior management
Directors and corporate auditors of the Company as of March 31, 2006 and their respective
business experience are listed below.
Name
Position
Date of
Business experience
(Date of birth)
(Group executive/function)
commencement
(*current position/function)
Fujio
Mitarai
Chairman,
President & CEO
4/1961
Entered the Company
(Sept. 23, 1935)
1/1979
President of Canon U.S.A., Inc.
3/1981
Director
3/1985
Managing Director
1/1989
In charge of HQ administration
3/1989
Senior Managing Director
3/1993
Executive Vice President
9/1995
President & C.E.O.
3/2006
Chairman,
President & CEO*
Tsuneji Uchida
Executive Vice President
4/1965
Entered the Company
(Oct. 30, 1941)
(Chief
Executive of Image Communication Products Operations HQ)
4/1995
Group Executive of Lens Products Group
3/1997
Director
4/1997
Deputy Chief Executive of Camera Operations HQ/Group
Executive of Photo Products Group
4/1999
Chief Executive of Camera Operations HQ
7/1999
In
charge of promotion of digital photo business
1/2000
In
charge of promotion of digital photo home business
1/2001
Chief
Executive of Image Communications Products HQ*
3/2001
Managing Director
3/2003
Senior Managing Director
3/2006
Executive Vice President*
Toshizo Tanaka
Senior Managing Director
4/1964
Entered the Company
(Oct. 8, 1940)
(Group Executive of Finance & Accounting HQ)
1/1992
Deputy
Group Executive of Finance & Accounting HQ
3/1995
Director
4/1995
Group Executive of Finance & Accounting HQ*
3/1997
Managing Director
3/2001
Senior Managing Director*
Nobuyoshi Tanaka
Senior Managing Director
4/1970
Entered the Company
(Dec. 23, 1945)
(Group Executive of Corporate Intellectual Property & Legal HQ)
1/1991
Senior
General Manager of Semiconductor Production Equipment Development Center
3/1993
Director
4/1993
Chief Executive of Optical Products HQ
4/1999
Group
Executive of Corporate Intellectual Property & Legal HQ*
3/2001
Managing Director
3/2006
Senior Managing Director*
Junji Ichikawa
Senior Managing Director
4/1965
Entered Shiba Electronics Co., Ltd.
(Feb. 9, 1943)
(Chief Executive of Optical Products HQ)
1/1970
Entered the Company
4/1994
Group Executive of Peripheral Group 1
3/1997
Director
4/1997
Deputy Chief Executive of Peripheral Products HQ
4/2000
Chief Executive of Peripheral Products HQ
3/2001
Managing Director
4/2003
Group Executive of Production Management HQ
4/2004
Chief Executive of Optical Products HQ*
3/2006
Senior Managing Director*
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Table of Contents
Name
Position
Date of
Business experience
(Date of birth)
(Group executive/function)
commencement
(*current position/function)
Hajime Tsuruoka
Senior Managing Director
3/1970
Entered Meiji Seika Kaisha Ltd.
(July 9, 1943)
11/1973
Entered the Company
4/1995
President of Canon Italia S.p.A.
3/1997
Director
9/1997
President of Canon Deutschland GmbH
3/1999
President of Canon Europa N.V.*
3/2001
Managing Director
3/2006
Senior Managing Director*
Akiyoshi Moroe
Managing Director
4/1968
Entered the Company
(Sept. 28, 1944)
(Group Executive of General Affairs HQ)
7/1996
Deputy
Group of Executive of Human Resource Management & Organization HQ
3/1999
Director
4/1999
Group Executive of General Affairs HQ*
10/2000
Group
Executive of Information & Communications Systems HQ
3/2003
Managing Director*
Kunio Watanabe
Managing Director
4/1969
Entered the Company
(Oct. 3, 1944)
(Group Executive of Corporate Strategy & Development HQ)
4/1995
Group Executive of Corporate
Strategy & Development HQ*
3/1999
Director
3/2003
Managing Director*
Hironori Yamamoto
Managing Director
4/1969
Entered the Company
(Dec. 23, 1943)
(Group Executive of Production Management HQ,
1/1998
Deputy
Group Executive of Production Management HQ
Group
Executive of Global Environment Promotion HQ)
3/1999
Director
7/1999
Group
Executive of Core Technology Development HQ/Deputy Group Executive of Display Development HQ
4/2001
Group Executive of Display Development HQ
3/2004
Managing Director*
7/2005
Group Executive of Production Management HQ*
3/2006
Group
Executive of Global Environment Promotion HQ*
Yoroku Adachi
Managing Director
4/1970
Entered the Company
(Jan. 11, 1948)
3/2001
Chairman of Canon Singapore Pte. Ltd.
Chairman
of Canon HongKong Co., Ltd.
Director
4/2003
President of Canon (China) Co., Ltd.
3/2005
Managing Director *
4/2005
President of Canon U.S.A., Inc.*
Yasuo Mitsuhashi
Managing Director
4/1974
Entered the Company
(Nov. 23, 1949)
(Chief Executive of Peripheral Products HQ)
2/2001
Chief Executive of Chemical Products HQ
3/2001
Director
4/2003
Chief Executive of Peripheral Products HQ*
3/2005
Managing Director *
Katsuichi Shimizu
Director
4/1970
Entered the Company
(Nov. 13, 1946)
(Chief Executive of Inkjet Products HQ)
4/2001
Deputy
Chief Executive of Office Imaging Products HQ
3/2003
Director*
4/2003
Chief Executive of Inkjet Products HQ*
Ryoichi Bamba
Director
4/1972
Entered the Company
(Nov. 25, 1946)
4/1998
Senior Vice President of Canon U.S.A., Inc.
2/2003
Executive Vice President of Canon U.S.A., Inc.*
3/2003
Director*
Tomonori Iwashita
Director
4/1972
Entered the Company
(Jan. 28, 1949)
(Deputy Chief Executive of Image Communication Products HQ)
4/1999
Senior
General Manager of Camera Development Center
1/2001
Group Executive of Photo Products Group
3/2003
Director*
4/2003
Deputy
Chief Executive of Image Communication Products HQ*
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Table of Contents
Name
Position
Date of
Business experience
(Date of birth)
(Group executive/function)
commencement
(*current position/function)
Toshio Honma
Director
4/1972
Entered the Company
(Mar. 10, 1949)
(Group
Executive of L Printer Business Promotion HQ)
4/2001
Deputy
Chief Executive of i Printer Products HQ
3/2003
Director*
4/2003
Group Executive of Business Promotion HQ
7/2003
Group
Executive of L Printer Business Promotion HQ*
Shigeru Imaiida
Director
4/1972
Entered the Company
(Sept. 16, 1948)
8/1999
Senior
General Manager of Production Engineering Center
3/2003
Director*
4/2004
Group Executive of Production Management HQ
7/2005
Deputy
Group Executive of Production Management HQ
10/2005
Director of Canon ANELVA Co.
3/2006
Senior Managing Director of Canon
ANELVA Co.*
Masahiro Osawa
Director
4/1971
Entered the Company
(May 26, 1947)
(Group Executive of Global Procurement HQ)
7/1997
Vice President of Canon U.S.A., Inc.
2/2003
Senior Vice President of Canon U.S.A., Inc.
7/2003
Deputy Group Executive of Finance
& Accounting HQ
3/2004
Director*
4/2004
Group Executive of Global Procurement HQ*
Keijiro Yamazaki
Director
4/1971
Entered the Company
(Oct. 14, 1948)
(Group Executive of Human Resource Management & Organization HQ,
Group Executive of Information & Communications Systems HQ)
4/1999
General
Manager of Human Resource Management & Organization Div.
1/2000
Deputy Group Executive of Human
Resource Management
& Organization HQ
3/2004
Director*
4/2004
Group
Executive of Information & Communications Systems HQ*
3/2006
Group
Executive of Human Resource Management & Organization HQ*
Shunichi Uzawa
Director
8/1978
Entered the Company
(Jan. 26, 1949)
(Group Executive of Core Technology Development HQ)
1/1998
Senior
General Manager of Nano-technology Research Center
4/2001
Deputy
Group Executive of Display Development HQ
3/2004
Director*
4/2004
Group Executive of SED Development HQ
10/2004
President of SED Inc.
1/2006
Group
Executive of Core Technology Development HQ*
Masaki Nakaoka
Director
4/1975
Entered the Company
(Jan. 3, 1950)
(Group
Executive of Office Imaging Products HQ)
1/1997
Senior
General Manager of Office Imaging Products Development Center 1
4/1999
Group Executive of Office Imaging Products Group 1
4/2001
Deputy
Chief Executive of Office Imaging Products HQ
3/2004
Director*
4/2005
Chief Executive of Office Imaging Products HQ*
Toshiyuki Komatsu
Director
4/1972
Entered the Company
(Jan. 19, 1950)
(Group Executive of Leading-Edge Technology Development HQ)
1/1998
Senior General Manager of Canon Research Center
1/2000
Deputy
Group Executive of Core Technology Development HQ
3/2004
Director*
4/2004
Group
Executive of Leading-Edge Technology Development HQ*
7/2005
Group
Executive of Core Technology Development HQ
Shigeyuki Matsumoto
Director
4/1977
Entered the Company
(Nov. 15, 1950)
(Group Executive of Device Technology Development Headquarters)
1/2002
Group
Executive of Device Technology Development Headquarters*
3/2004
Director*
41
Table of Contents
Name
Position
Date of
Business experience
(Date of birth)
(Group executive/function)
commencement
(*current position/function)
Haruhisa Honda
Director
4/1974
Entered the Company
(Oct. 14, 1948)
(Chief Executive of Chemical Products Operations)
4/1995
Senior General Manager of Cartridge
Development Center
3/2004
Director*
4/2004
Chief Executive of Chemical Products Operations*
Tetsuro Tahara
Director
4/1971
Entered the Company
(Jan. 31, 1949)
4/1999
Senior
General Manager of Office Imaging Products Production Management
Center
4/2002
Deputy
Chief Executive of Office Imaging Products HQ
4/2003
President of Canon (Suzhou) Inc.*
3/2006
Director*
Seijiro Sekine
Director
4/1972
Entered the Company
(Oct. 20, 1948)
(Group Executive of Logistics HQ)
4/1995
General
Manager of Business Information Systems Division
1/2001
Deputy
Group Executive of Information & Communication Systems HQ
10/2004
Group Executive of Logistics HQ*
3/2006
Director*
Shunji Onda
Director
4/1972
Entered the Company
(Mar. 13, 1950)
(Senior General Manager of Optical Products Business Administration Center)
1/1999
General Manager of Peripheral
Products
Chief Executive Office
1/2002
General Manager of Finance Division
4/2004
Senior
General Manager of Optical Products Business Administration
Center*
3/2006
Director*
Teruomi Takahashi
Corporate Auditor
9/1971
Entered the Company
(June 10, 1943)
3/1999
Director
4/1999
Chief Executive of Chemical Products HQ
2/2001
Chief Executive of BJ Products HQ
4/2001
Chief Executive of i Printer Products HQ
4/2003
Chief Executive of Chemical Products HQ
3/2004
Corporate Auditor *
Kunihiro Nagata
Corporate Auditor
4/1970
Entered the Company
(Mar.16, 1948)
1/1991
General
Manager of Business Machines Accounting Dept.
4/1995
Senior
General Manager of Business Machines Accounting & Production
Planning Center
10/2000
General Manager of Corporate Planning Division
1/2003
Deputy
Group Executive of Corporate Strategy Development HQ
3/2004
Corporate Auditor *
Tadashi Ohe
Corporate Auditor
4/1969
Registration as a lawyer*
(May 20, 1944)
4/1989
Instructor of Judicial Training Institution
3/1994
Corporate Auditor, the Company*
Yoshinobu Shimizu
Corporate Auditor
3/1973
Registered as Certified Public Accountant*
(Oct. 26, 1944)
6/1990
Representative Partner of Showa Ota & Co.
5/2002
Deputy Chief Executive Officer of
Century Ota Showa & Co. (renamed Ernst & Young
ShinNihon)
3/2006
Corporate Auditor, the Company*
Minoru Shishikura
Corporate Auditor
4/1976
Entered The Dai-Ichi Mutual Life Insurance Co.
(Sept. 13, 1953)
4/1998
General Manager of Metropolitan
Corporate Loan Dept. of The Dai-Ichi Mutual Life Insurance Co.
4/2000
General Manager of Loan Department
of The Dai-Ichi Mutual Life Insurance Co.
4/2002
General
Manager of Credit Department of The Dai-Ichi Mutual Life Insurance
Co.
3/2006
Corporate Auditor, the Company*
42
Table of Contents
Term
All directors and corporate auditors are elected by the shareholders at their general meeting.
The term of office of directors is one year. The current term of all directors expires in
March 2007. The term of office of corporate auditors is four years. The current term for Mr. Ohe
expires in March 2007, while current terms for Mr. Takahashi and Mr. Nagata, who were elected in
the general meeting of shareholders in March 2004, expire in March 2008, and current terms for
Mr.Shimizu and Mr.Shishikura, who were newly elected in the general meeting of shareholders in
March 2006, expires in March 2010.
Board members and corporate auditors may serve any number of consecutive terms.
There is no arrangement or understanding between any director or corporate auditor and any
major shareholder, customer, supplier or other material stakeholders in connection with the
selection of such director or corporate auditor.
Board of Directors and Corporate Auditors
The Company's articles of incorporation provide for a board of directors of not more than 30
members and for not more than five corporate auditors. Currently the number of board members is 26,
and the number of corporate auditors is five. There is no maximum age limit for members of the
board. Board members and corporate auditors may be removed from office at any time by a resolution
of a general meeting of shareholders.
The board of directors has ultimate responsibility for the administration of the Company's
affairs. By resolution, the board of directors designates, from among its members, representative
directors, who have authority individually to represent the Company generally in the conduct of its
affairs.
Under the Commercial Code of Japan, board members must refrain from engaging in any business
competing with the Company unless approved by a board resolution, and no board member may vote on a
proposal, arrangement or contract in which that board member is deemed to be materially interested.
The Commercial Code requires a resolution of the board of directors for a company to acquire
or dispose of material assets, to borrow substantial amounts of money, to employ or discharge
important employees such as corporate officers, and to establish, change or abolish material
corporate organizations such as a branch office.
The corporate auditors are not required to be certified public accountants, although
Mr.Shimizu is a certified public accountant. At least half of corporate auditors must be persons
who have not been either board members or employees of the Company or any of its subsidiaries. A
corporate auditor may not at the same time be a board member or an employee of the Company or any
of its subsidiaries. The corporate auditors have the statutory duty of examining the Company's
financial statements and the Company's business reports to be submitted annually by the board of
directors at the general meetings of shareholders and of reporting their opinions to the
shareholders. They also have the statutory duty of supervising the administration by the board
members of the Company's affairs. They shall participate in the meetings of the board of directors
but are not entitled to vote.
The corporate auditors constitute the board of corporate auditors. Under "The Law to Revise
Part of the Commercial Code and the Law Regarding Exceptional Rules of the Commercial Code
Concerning Auditing, etc. of Stock Corporation", the board of corporate auditors has a statutory
duty to prepare and submit its audit report to the board of directors each year. A corporate
auditor may note an opinion in the auditor report if a corporate auditor's opinion is different
from the opinion expressed in the audit report. The board of corporate auditors is empowered to
establish audit principles, the method of examination by corporate auditors of the Company's
affairs and financial position and other matters concerning the performance of the corporate
auditors' duties. The Company does not have an audit committee.
The amount of remuneration payable to the Company's board members as a group and that of the
Company's corporate auditors as a group in respect of a fiscal year is subject to approval by a
general meeting of shareholders. Within those authorized amounts, the compensation for each board
member and corporate auditor is determined by the board of directors and a consultation of the
corporate auditors, respectively. The Company does not have a remuneration committee.
In fiscal 2004, Canon established a standing committees, the Internal Control Committee, with
the president appointed as chairman of the group. The Internal Control Committee has built a highly
effective internal control system unique to the Canon Group, which not only serves to ensure the
reliability of the company's financial reporting, but also aims to ensure the effectiveness and
efficiency of its business operations, as well as compliance with related laws, regulations, and
internal controls.
Additionally, in fiscal 2005, the Disclosure Committee was established with the president
appointed as chairman. This committee was formed to ensure that Canon is not only in compliance
with applicable laws, rules and regulations, but also to ensure that information disclosed to
shareholders and capital markets is both correct and comprehensive.
B. Compensation
In the fiscal year ended December 31, 2005, the Company paid approximately Yen 1,442 million,
in total to directors and corporate auditors. This amount includes bonuses but excludes retirement
allowances.
Directors and corporate auditors are not covered by the Company's retirement program. However,
in accordance with customary Japanese business practices, directors and corporate auditors receive
lump-sum retirement benefits, subject to shareholder approval. The Company paid retirement benefits
aggregating Yen 120 million to two directors during the fiscal year ended December 31, 2005.
The Company does not have a stock option plan for directors, corporate auditors or any other
employees.
43
Table of Contents
C. Board practices
See
Item 6A "Directors and senior management" and
Item 6B "Compensation."
D. Employees
Following table lists the number of Canon's full-time employees as of December 31, 2005, 2004 and 2003.
Total
Japan
Americas
Europe
Others
December 31, 2005
Business machines
77,906
29,964
7,297
8,988
31,657
Cameras
18,308
5,263
1,552
1,405
10,088
Optical and other products
13,762
8,249
999
435
4,079
Corporate
5,607
5,161
90
94
262
Total
115,583
48,637
9,938
10,922
46,086
December 31, 2004
Business machines
74,772
29,928
7,833
8,997
28,014
Cameras
16,534
5,008
1,400
1,402
8,724
Optical and other products
11,397
6,458
908
391
3,640
Corporate
5,554
4,709
117
108
620
Total
108,257
46,103
10,258
10,898
40,998
December 31, 2003
Business machines
70,214
29,734
7,820
9,520
23,140
Cameras
15,856
4,698
1,318
1,006
8,834
Optical and other products
11,308
6,580
908
619
3,201
Corporate
5,189
4,368
134
162
525
Total
102,567
45,380
10,180
11,307
35,700
Note:
Effective January 2004, Canon has changed the classification of its information system business.
The information system business which had been included in "Optical and other products", was
reclassified as "Business machines (Office imaging products)" in order to better reflect its
relation with the other products of the business machines group. Accordingly, information for
previous fiscal years has been reclassified to conform with the current classification.
There was an increase of approximately 7,300 employees as of the end of fiscal 2005 as
compared to the end of fiscal 2004. This increase is mainly due to
employment increases in the Asian region to accommodate production increases, as well as the effect
of the newly acquired companies in Japan.
Canon had approximately 45,800 temporary employees on average during fiscal 2005. This number
includes seasonal workers as well as temp-staff employees such as security staff, meal service
staff and janitorial staff.
The
Company and its subsidiaries have their own independent labor union. Canon has not
experienced a labor strike since its establishment. The Company
believes that the relationship between Canon and its labor union is good.
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Table of Contents
E. Share ownership
The following table lists the number of shares owned by the directors and corporate auditors
of the Company as of March 31, 2006. The total is 216,086
shares constituting 0.02% of all outstanding shares.
Name
Position
Number of shares
Fujio Mitarai
Chairman, President & CEO
60,800
Tsuneji Uchida
Executive Vice President
5,600
Toshizo Tanaka
Senior Managing Director
11,768
Nobuyoshi Tanaka
Senior Managing Director
12,355
Junji Ichikawa
Senior Managing Director
10,531
Hajime Tsuruoka
Senior Managing Director
7,695
Akiyoshi Moroe
Managing Director
10,955
Kunio Watanabe
Managing Director
8,235
Hironori Yamamoto
Managing Director
4,900
Yoroku Adachi
Managing Director
6,095
Yasuo Mitsuhashi
Managing Director
4,985
Katsuichi Shimizu
Director
5,625
Ryoichi Bamba
Director
3,000
Tomonori Iwashita
Director
3,700
Toshio Honma
Director
6,595
Shigeru Imaiida
Director
4,535
Masahiro Osawa
Director
3,295
Keijiro Yamazaki
Director
3,100
Shunichi Uzawa
Director
3,395
Masaki Nakaoka
Director
2,000
Toshiyuki Komatsu
Director
1,400
Shigeyuki Matsumoto
Director
2,235
Haruhisa Honda
Director
2,926
Tetsuro Tahara
Director
435
Seijiro Sekine
Director
2,560
Shunji Onda
Director
2,435
Teruomi Takahashi
Corporate Auditor
7,231
Kunihiro Nagata
Corporate Auditor
1,300
Tadashi Ohe
Corporate Auditor
15,400
Yoshinobu Shimizu
Corporate Auditor
—
Minoru Shishikura
Corporate Auditor
1,000
Total
216,086
The Company and certain of its subsidiaries encourage its employees to purchase shares of
their Common Stock in the market through an employees' stock purchase association.
45
Table of Contents
Item 7. Major Shareholders and Related Party Transactions
A. Major shareholders
The table below shows the number of The Company's shares held by the top ten holders of the
Company's shares and their percentage ownership as of December 31, 2005:
Name of major shareholder
Shares owned
Percentage
(In thousands)
The Dai-Ichi Mutual Life Insurance Co.
59,090
6.7
%
Moxley and Co.
49,388
5.6
%
Japan Trustee Services Bank, Ltd.
48,360
5.4
%
(Trust Account)
The Master
Trust Bank of Japan, Ltd.
39,888
4.5
%
(Trust Account)
State Street Bank and Trust Company 505103
24,740
2.8
%
State Street Bank and Trust Company
21,629
2.4
%
Nomura Securities Co., Ltd.
19,735
2.2
%
Mizuho Corporate Bank, Ltd.
18,946
2.1
%
The Chase Manhattan Bank, N.A. London
18,653
2.1
%
Sompo Japan Insurance Inc.
15,273
1.7
%
Canon's major shareholders do not have different voting rights from other shareholders.
As of December 31, 2005, 21.4% of the outstanding shares of common stock were held of record
by 248 residents of the United States of America.
The Company is not directly or indirectly owned or controlled by any other corporation, by any
government, or by any other natural or legal person or
persons severally or jointly.
B. Related party transactions
Since the beginning of Canon's last full fiscal year, Canon has not transacted with, nor does
Canon currently plan to transact with a related party
(other than certain transactions with subsidiaries of the Company). For purposes of this paragraph,
a related party includes: (a) enterprises that directly or
indirectly through one or more intermediaries, control or are controlled by, or are under common
control with, Canon; (b) associates; (c) individuals owning,
directly or indirectly, an interest in the voting power of Canon that gives them significant
influence over Canon, and close members of any such individual's
family; (d) key management personnel, that is, those persons having authority and responsibility
for planning, directing and controlling the activities of
Canon, including directors and senior management of companies and close member of such individual's
families; (e) enterprises in which a substantial interest
in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over
which such a person is able to exercise significant influence. This includes enterprises owned by
directors or major shareholders of Canon and enterprises that have a member of key management in
common with Canon. Close members of an individual's family are those that may be expected to
influence, or be influenced by, that person in their dealings with Canon. An associate is an
unconsolidated enterprise in which Canon has a significant influence or which has significant
influence over Canon. Significant influence over an enterprise is the power to participate in the
financial and operating policy decisions of the enterprise but is less than control over those
policies. Shareholders beneficially owning a 10% interest in the voting power of the Company are
presumed to have a significant influence on Canon.
To the Company's knowledge, no person owned a 10% interest in the voting power of the Company
as of March 31, 2006.
In the ordinary course of business on an arm's length basis, Canon purchases and sells
materials, supplies and services from and to its affiliates accounted for by the equity method.
There are 13 affiliates which are accounted for by the equity method. Canon does not consider the
amounts of the transactions with the
above affiliates to be material to its business.
C. Interests of experts and counsel
Not Applicable.
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Table of Contents
Item 8. Financial Information
A. Consolidated financial statements and other financial information
Consolidated financial statements
This Annual Report contains consolidated financial statements as of December 31, 2005 and 2004
and for each of the three years in the period ending
December 31, 2005 prepared in accordance with U.S. generally accepted accounting principles and
audited in accordance with the standards of the Public Company Accounting Oversight Board (United
States) by an Independent Registered Public Accounting Firms. The financial statements as of and
for the years ended December 31, 2005 and 2004 have been audited by Ernst & Young ShinNihon, while
the financial statements for periods ended prior to December 31, 2004, were audited by KPMG AZSA &
Co., and audit reports covering each of the periods are included in Item17 of this report.
Refer to Item 17, Consolidated Financial Statements and Notes to Consolidated Financial
Statements.
Legal proceedings
Other than as described below, neither the Company nor its subsidiaries are involved in any
litigation or other legal proceedings that, if determined adversely to the Company or its
subsidiaries, would individually or in the aggregate have a material adverse effect on the Company
or its operations.
•
On December 17, 2002, the European Commission instituted an investigation into the printer
and supply market. Canon received a questionnaire in connection with the investigation of
the printer and supply market on January 3, 2003 and Canon has submitted its response. The
investigation is yet to be closed.
•
On January 16, 2003, the Dusseldorf District Court in Germany issued rulings in Canon's
favor in two patent infringement actions filed by Canon against Pelikan Hardcopy
Deutschland GmbH and Pelikan Hardcopy European Logistics & Services GmbH (collectively,
"Pelikan Hardcopy"). Pelikan Hardcopy has appealed the decision. On November 20, 2003, the
Dusseldorf District Court in Germany issued a ruling in Canon's favor in another patent
infringement action filed by Canon against Pelikan Hardcopy. Pelikan Hardcopy has appealed
the decision. The Dusseldorf High Court issued rulings in Canon's favor in one of the three
appeals by Pelikan Hardcopy. On November 17, 2005, the Dusseldorf High Court issued
rulings in Canon's favor in another of the three appeals by
Pelikan Hardcopy. The
remaining one of the appeals has been suspended by the Court since April 19, 2004.
•
In October 2003, on-the-spot investigation was made against Canon by the Japanese Fair Trade
Commission ("FTC"). Their allegation against us was that Canon was interfering with the
businesses of the cartridge remanufacturers by frequently changing the design of color LBP
cartridges. This investigation was terminated by FTC on October 21, 2004, without taking
any action.
•
In November 2003, a lawsuit was filed by a former employee against the Company at the
Tokyo District Court in Japan. The lawsuit alleges that the former employee is entitled to
Yen 45.9 billion as compensation for an invention related to certain technology used by the
Company, and the former employee has sued for a partial payment of Yen 1 billion and
interest thereon. The case is still pending and the final outcome is not yet determinable.
•
In February 2003, a lawsuit was filed by St. Clair Intellectual Property Consultants,
Inc. ("St. Clair") against the Company and one of its subsidiaries in the United States
District Court of Delaware, which accused the Company of infringement of patents related to
certain technology. In connection with this case, in October 2004, a jury preliminarily
found damages against the Company of approximately Yen 4 billion based on a percentage of
certain product sales in the United States through 2003. Subsequent to this jury finding,
St. Clair also made a motion to the court for damages relating to certain 2004 sales, using
the same royalty rate awarded by the jury. There are additional defenses that are yet to be
litigated in a follow-up non-jury trial solely before a judge; thus, a final decision by the
court has not yet been reached. In March 2006, the Company and St. Clair have entered into
a settlement agreement, pursuant to which they have agreed to settle the lawsuit and
withdraw it.
•
In Germany, Verwertungsgesellschaft Wort ("VG Wort"), a collecting agency representing
certain copyright holders, has filed a series of lawsuits seeking to impose copyright levies
upon digital products such as PCs and printers, that allegedly enable the reproduction of
copyrighted materials, against the companies importing and distributing these digital
products. In May 2004, VG Wort filed a civil lawsuit against Hewlett-Packard GmbH seeking
for levies on multi-function printers. This is an industry test case under which
Hewlett-Packard GmbH represents other companies sharing common interests, and Canon has
undertaken to be bound by the final decision of this court case. The court of first
instance and the court of appeals held that the multi-function printers were subject to a
levy. In particular, the court of appeals ordered Hewlett-Packard GmbH to pay the amount
equivalent to the levies imposed on photocopiers (EUR 38.35 to EUR 613.56 per unit,
depending on printing speed and color printing capability). This lawsuit is currently under
appeal before the German Federal Supreme Court. With regard to single-function printers, VG
Wort filed a separate lawsuit on January 3, 2006 against Canon seeking for payment of
copyright levies. Canon, other companies and the industry associations have expressed
opposition to such extension of the levy scope and the final conclusion of these court cases
including the amount of levies to be imposed, remains uncertain.
•
On April 16, 2004, Canon filed two patent infringement
actions against Recycle • Assist
Co., Ltd. ("Recycle • Assist") before the Tokyo District Court. On December 8, 2004, the Tokyo
District Court issued rulings in Recycle • Assist's favor in the two actions. On December 21,
2004, Canon appealed against the decisions of the two actions. On January 31, 2006, the
Intellectual Property High Court issued a ruling in favor of Canon in one of the two appeal
cases. On February 13, 2006, Recycle • Assist further appealed against this ruling of the
Intellectual Property High Court. The remaining appeal case is pending before the
Intellectual Property High Court.
Dividend policy
Dividends are proposed by the Board of Directors of the Company based on the year-end
non-consolidated financial statements of the Company, and are approved at the ordinary general
meeting of shareholders, which is held in March of each year. Record holders of the Company's
American Depositary Receipts (ADRs) on the dividends' record date are entitled to receive payment
in full of the declared dividend. In addition to annual dividends, by resolution of the Board of
Directors, the Company may declare a cash distribution as an interim dividend. The record date for
the Company's year-end dividends and for the interim dividends are December 31 and June 30,
respectively.
Since 1996, under the two five-year initiatives — Phases I and II of the Excellent Global
Corporation Plan — the Canon Group has been working towards increasing its corporate value. During
this period, management has focused on profitability and cash flow, which has led to greater
competitiveness of its products and a stronger financial position.
47
Table of Contents
Going forward, Canon will positively invest in strategic areas to accelerate growth, and will
also place priority on actively returning profits to shareholders as an important management
measure, taking full advantage of its strengthened financial base, which is attributable to the two
five-year plans.
As for returning profits to shareholders, Canon has worked to raise its dividend per share in
accordance with the company's policy of providing a stable dividend. Under the new policy, Canon
will actively work to return profits to shareholders, mainly in the form of a dividend, taking into
consideration planned future investments, free cash flow, and the company's consolidated business
performance.
Canon has finished this year, the final year of Phase II of the Excellent Global Corporation
Plan, by achieving increases in both sales and profits, and also significantly exceeding the
targets that were set out for Phase II. Accordingly, in response to the continued support of
shareholders and based on the new policy on returning profits to shareholders, Canon has increased
its full-year dividend per share from Yen 65 in 2004, to Yen 100 for fiscal year 2005.
B. Significant changes
No significant change has occurred since the date of the annual financial statements.
Item 9. The Offer and Listing
A. Offer and listing details
Trading in domestic markets
The common stock of the Company has been listed on the Tokyo Stock Exchange (TSE), the
principal stock exchange market in Japan, since 1949, and is traded on the First Section of the
TSE. The shares are also listed on four other regional markets in Japan.
The following table lists the reported high and low sales prices of the shares on the TSE and
the closing highs and lows of the Tokyo Stock Price Index (TOPIX) and Nikkei Stock Average for the
five most recent years. TOPIX is an index of the market value of stocks listed on the First
Section of the TSE. The Nikkei Stock Average, an index of 225 selected stocks on the First Section
of the TSE, is another widely accepted index.
TSE
TOPIX
Nikkei Stock Average
(Canon Inc.)
(Reference data)
(Reference data)
(Japanese yen)
(Points)
(Japanese yen)
Period
High
Low
High
Low
High
Low
2001 Year
¥
5,330
¥
3,150
1,441.00
983.00
¥
14,529.41
¥
9,504.41
2002 Year
5,250
3,620
1,144.02
807.35
11,979.85
8,303.39
2003 Year
6,210
3,910
1,114.40
770.46
11,161.71
7,607.88
2004 1(st) quarter
5,670
4,920
1,189.38
1,017.84
11,869.00
10,299.43
2(nd) quarter
5,820
5,220
1,225.97
1,051.57
12,195.66
10,489.84
3(rd) quarter
5,810
4,910
1,197.74
1,073.69
11,988.12
10,545.89
4(th) quarter
5,540
5,030
1,149.85
1,068.85
11,500.95
10,575.23
2004 Year
5,820
4,910
1,225.97
1,017.84
12,195.66
10,299.43
2005 1(st) quarter
5,790
5,190
1,206.93
1,128.75
11,975.46
11,212.63
2(nd) quarter
6,000
5,380
1,202.46
1,104.30
11,911.90
10,770.58
3(rd) quarter
6,190
5,380
1,430.80
1,174.16
13,678.44
11,540.93
4(th) quarter
7,170
5,940
1,673.18
1,363.66
16,445.56
12,996.29
2005 Year
7,170
5,190
1,673.18
1,104.30
16,445.56
10,770.58
TSE
TOPIX
Nikkei Stock Average
(Canon Inc.)
(Reference data)
(Reference data)
(Japanese yen)
(Points)
(Japanese yen)
Period
High
Low
High
Low
High
Low
2005 July
¥
6,130
¥
5,530
1,207.48
1,174.92
¥
11,913.50
¥
11,540.93
August
5,710
5,380
1,283.23
1,174.16
12,612.16
11,614.71
September
6,190
5,520
1,430.80
1,274.63
13,678.44
12,498.40
October
6,460
5,940
1,447.45
1,363.66
13,783.60
12,996.29
November
6,870
6,110
1,553.27
1,444.73
15,013.24
13,606.50
December
7,170
6,760
1,673.18
1,538.99
16,445.56
14,880.18
2006 January
7,320
6,850
1,721.92
1,538.85
16,754.60
15,059.52
February
7,370
6,970
1,719.17
1,568.50
16,777.37
15,389.58
March
7,930
7,160
1,735.25
1,595.93
17,125.64
15,553.14
48
Table of Contents
Trading in foreign markets
The Company's ADRs are listed on the New York Stock Exchange (NYSE) and the Company's Global
Bearer Certificates (GBCs) are listed on the Frankfurt Stock Exchange.
Since the Company's 1969 public offering in the United States of U.S.$9,000,000 principal
amount of its 6 1/2 % Convertible Debentures due 1984, there has been limited trading in the
over-the-counter market in the Company's ADRs. Since March 16, 1998, each ADR represents one share
of the Company's common stock. The Company's ADSs had been quoted on the National Association of
Securities Dealers Automated Quotation system ("NASDAQ") since 1972 under the symbol CANNY to
September 13, 2000.
On September 14, 2000, Canon listed its ADSs on the NYSE under the symbol CAJ. The table below
displays historical transition of high and low prices of our ADSs on NYSE.
NYSE
(Canon Inc.)
(U.S. dollars)
Period
High
Low
2001 Year
$
42.900
$
26.480
2002 Year
40.400
30.150
2003 Year
53.000
33.730
2004 1(st) quarter
52.630
46.680
2(nd) quarter
53.940
46.920
3(rd) quarter
53.350
44.440
4(th) quarter
54.390
47.290
2004 Year
54.390
44.440
2005 1(st) quarter
54.490
50.530
2(nd) quarter
55.710
51.000
3(rd) quarter
55.050
48.960
4(th) quarter
60.420
51.570
2005 Year
60.420
48.960
NYSE
(Canon Inc.)
(U.S. dollars)
Period
High
Low
2005 July
$
55.050
$
48.960
August
51.970
49.010
September
54.280
50.400
October
56.060
51.570
November
57.840
52.300
December
60.420
57.010
2006 January
63.920
59.540
February
62.900
59.440
March
66.930
60.650
The depositary and agent of the ADRs is JPMorgan Chase Bank, located at 1 Chase Manhattan Plaza, New York, N.Y. 10081, U.S.A.
Co-ownership shares in a GBCs are listed on the Frankfurt Stock Exchange.
B. Plan of distribution
Not applicable.
C. Markets
See Item 9A "Offer and Listing Details."
49
Table of Contents
Item 10. Additional Information
A. Share capital
Not applicable.
B. Memorandum and articles of association
Objects and Purposes in Canon Inc. (the "Company")'s Articles of Incorporation
Objects of the Company provided in Article 2 of the Company's Articles of Incorporation shall
be to engage in the following business:
(1)
Manufacture and sale of optical machineries and instruments of various kinds.
(2)
Manufacture and sale of acoustic, electrical and electronic machineries and instruments of
various kinds.
(3)
Manufacture and sale of precision machineries and instruments of various kinds.
(4)
Manufacture and sale of medical machineries and instruments of various kinds.
(5)
Manufacture and sale of general machineries, instruments and equipments of various kinds.
(6)
Manufacture and sale of parts, materials, etc. relative to the products mentioned in each of
the preceding items.
(7)
Production and sale of software products.
(8)
Manufacture and sale of pharmaceutical products
(9)
Telecommunications business, and information service business such as information processing service business, information providing
service business, etc.
(10)
Contracting for telecommunications works, electrical works and machinery and equipment installation works.
(11)
Sale, purchase and leasing of real properties and contracting for architectural works.
(12)
Manpower providing business, property leasing business and travel business.
(13)
Business relative to investigation, analysis of the environment and purification process of soil, water, etc.
(14)
Any and all business relative to each of the preceding items.
Provisions Regarding Directors
There is no provision in the Company's Articles of Incorporation as to a Director's power to
vote on a proposal, arrangement or contract in which the Director is materially interested, but,
under the Commercial Code of Japan, a director is required to refrain from voting on such matters
at meetings of the board of directors.
The Commercial Code provides that compensation for directors is determined at a general
meeting of shareholders of a company. Within the upper limit approved by the shareholders' meeting,
the board of directors will determine the amount of compensation for each director. The board of
directors may, by its resolution, leave such decision to the discretion of the company's
representative director.
The Commercial Code provides that the incurrence by a company of a significant loan from a
third party should be approved by the company's board of directors. The Company's Regulations of
the Board of Directors have adopted this policy.
There is no mandatory retirement age for the Company's Directors under the Commercial Code or
its Articles of Incorporation.
There is no requirement concerning the number of shares an individual must hold in order to
qualify him as a Director of the Company under the Commercial Code or its Articles of
Incorporation.
Holding of Shares by Foreign Investors
Other than the Japanese unit share system that is described in "Rights of Shareholders -
Japanese Unit Share System" below, there are no limitations on the rights of non-residents or
foreign shareholders to hold or exercise voting rights on the Company's shares imposed by the laws
of Japan or the Company's Articles of Incorporation or other constituent documents.
Rights of Shareholders
Set forth below is information relating to the Company's common stock, including brief
summaries of the relevant provisions of its Articles of Incorporation and Regulations for Handling
of Shares, as currently in effect, and of the Commercial Code of Japan and related legislation.
50
Table of Contents
General
The Company's authorized share capital is 2,000,000,000 shares, of which 888,742,779 shares
were issued and outstanding as of December 31, 2005. Under the Commercial Code, shares must be
registered and are transferable by delivery of share certificates. In order to assert shareholders'
rights against the Company, a shareholder must have its name and address registered on its register
of shareholders, in accordance with the Company's Regulations for Handling of Shares.
A holder of shares may choose, at its discretion, to participate in the central clearing
system for share certificates under the Law Concerning Central Clearing of Share Certificates and
Other Securities of Japan. Participating shareholders must deposit certificates representing all of
the shares to be included in this clearing system with the Japan Securities Depository Center, Inc.
(the "Securities Center"). If a holder is not a participating institution in the Securities Center,
it must participate through a participating institution, such as a securities company or bank
having a clearing account with the Securities Center. All shares deposited with the Securities
Center will be registered in the name of the Securities Center on the Company's register of
shareholders. Each participating shareholder will in turn be registered on the Company's register
of beneficial shareholders and be treated in the same way as shareholders registered on its
register of shareholders. For the purpose of transferring deposited shares, delivery of share
certificates is not required. Entry of the share transfer in the books maintained by the Securities
Center for participating institutions, or in the book maintained by a participating institution for
its customers, has the same effect as delivery of share certificates. The registered beneficial
owners may exercise the rights attached to the shares, such as voting rights, and will receive
dividends (if any) and notices to shareholders directly from the Company. The shares held by a
person as a registered shareholder and those held by the same person as a registered beneficial
owner are aggregated for these purposes. Beneficial owners may at any time withdraw their shares
from deposit and receive share certificates, subject to the limitations caused by the Japanese unit
share system described below.
A new law to establish a new central clearing system for shares of listed companies and to
eliminate the issuance and use of certificates for such shares was promulgated in June 2004 and the
relevant law will come into effect within five years of the date of promulgation. On the effective
date, a new central clearing system will be established and the shares of all Japanese companies
listed on any Japanese stock exchange, including the Company's shares, will be subject to the new
central clearing system. On the same day, all existing share certificates for share of all
Japanese companies listed on any Japanese stock exchange, including the Company's shares, will
become null and void and the transfer of such shares will be effected through entry in the books
maintained under the new central clearing system.
The registered beneficial holder of deposited shares underlying the ADSs is the depositary for
the ADSs. Accordingly, holders of ADSs will not be able to directly assert shareholders' rights.
Dividends
Under the Company's Articles of Incorporation, its financial accounts will be closed on
December 31 of each year and dividends, if any, will be distributed to shareholders (or pledgees)
written or recorded in the register of shareholders as of the close of business on that date
following approval at its ordinary general meeting of shareholders. In addition, by resolution of
the board of directors, the Company may distribute interim dividends to the shareholders (or
pledgees) written or recorded in the register of shareholders as of June 30 each year. Dividends
will be distributed in cash.
The Commercial Code provides that, until the aggregate amount of the Company's legal reserve
and additional paid-in capital is at least one-quarter of its stated capital, it may not make any distribution of profits by way of annual cash dividends or
interim dividends unless it sets aside in its legal reserve an amount equal to at least one-tenth
of any amount that it pays out as an appropriation of retained earnings, including any payment by
way of annual or interim dividends and bonuses to Directors and Corporate Auditors. The Commercial
Code will permit the Company to distribute profits by way of dividends out of the excess of the net
assets, on a non-consolidated basis, over the aggregate of:
(1)
the stated capital;
(2)
the additional paid-in capital;
(3)
the accumulated legal reserve;
(4)
the legal reserve to be set aside in respect of the dividends concerned and proposed payment by
way of appropriation of retained earnings; and
(5)
other matters specified in the Implementation Ordinance of the Commercial Code.
In the case of interim dividends, the net assets are calculated by reference to the
non-consolidated balance sheet as at the last closing of the Company's accounts, but adjusted to
reflect (i) any subsequent payment by way of appropriation of retained earnings and transfer to
legal reserve in respect thereof, (ii) any subsequent transfer of retained earning to stated
capital, (iii) if it has been authorized, pursuant to a resolution of a general meeting of
shareholders, to purchase shares (see "Repurchase by the Company of Shares" below) the total amount
of the purchase price of such share so authorized by such resolution that may be paid by the
Company and (iv) other matters specified in the Implementation Ordinance of the Commercial Code.
Interim dividends may not be paid where there is a risk that at the end of the fiscal year there
might not be any excess of net assets over the aggregate of the amounts referred to in (1) through
(5) above.
Stock Splits
The Commercial Code permits the Company, by resolution of its board of directors, to make
stock splits, regardless of the value of net assets (as appearing in its latest non-consolidated
balance sheet) per share. Under the Commercial Code, when the Company issues new shares in the
future, the entire amount of issue price of those new shares is required to be accounted for as
stated capital, although it may account for an amount not exceeding one-half of the issue price as
additional paid-in capital. By resolution of the Company's board of directors, the Company may make
a stock split within an amount of stated capital or by transferring the whole or any part of
additional paid-in capital and legal reserve to stated capital.
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Under the Commercial Code, by resolution of the Company's board of directors, the Company may
increase the authorized shares up to the number reflecting the rate of stock splits and amend its
Articles of Incorporation by resolution of its board of directors to this effect without the
approval of a shareholders' meeting. For example, if each share became three shares by way of a
stock split, the Company may increase the authorized shares from the current 2,000,000,000 shares
to 6,000,000,000 shares.
Japanese Unit Share System
The Company's Articles of Incorporation provided that 100 shares of common stock constitute
one "unit". The Commercial Code of Japan permits the Company, by resolution of its board of
directors, to reduce the number of shares which constitutes one unit or abolish the unit share
system, and amend its Articles of Incorporation to this effect without the approval of a
shareholders' meeting.
Transferability of Shares Representing Less than One Unit
The Company may not issue share certificates for a number of shares not constituting an
integral number of units, except in limited circumstances. Because the transfer of shares normally
requires delivery of the share certificates for the shares being transferred, shares constituting a
fraction of a unit and for which no share certificates are issued may not be transferable. Because
transfer of ADRs does not require a change in the ownership of the underlying shares, holders of
ADRs evidencing ADSs that constitute less than one unit of shares are not affected by these
restrictions in their ability to transfer the ADRs.
However, because transfers of less than one unit of the underlying shares are normally prohibited
under the unit share system, the deposit agreement provides that the right of ADR holders to
surrender their ADRs and withdraw the underlying shares for sale in Japan may only be exercised as
to whole units.
Right of a Holder of Shares Representing Less than One Unit to Require the Company to Purchase Its
Shares
A holder of shares representing less than one unit may at any time require the Company to
purchase its shares. These shares will be purchased at (a) the closing price of the shares reported
by the Tokyo Stock Exchange, Inc. (the "Tokyo Stock Exchange") on the day when the request to
purchase is made or (b) if no sale takes place on the Tokyo Stock Exchange on that day, then the
price at which sale of shares is effected on such stock exchange immediately thereafter. In such
case, the Company will request payment of an amount equal to the brokerage commission applicable to
the shares purchased pursuant to its Regulations for Handling of Shares. However, because holders
of ADSs representing less than one unit are not able to withdraw the underlying shares from
deposit, these holders will not be able to exercise this right as a practical matter.
Right of a Holder of Shares Representing Less than One Unit to Purchase from the Company its Shares
up to a Whole Unit
The Articles of Incorporation of the Company provide that a holder of shares representing less
than one unit may require the Company to sell its shares to such holder so that the holder can
raise its fractional ownership to a whole unit. These shares will be sold at (a) the closing price
of the shares reported by the Tokyo Stock Exchange on the day when the request to sell becomes
effective or (b) if no sale has taken place on the Tokyo Stock Exchange on that day, then the price
at which sale of shares is effected on such stock exchange immediately thereafter. In such case,
the Company will request payment of an amount equal to the brokerage commission applicable to the
shares sold pursuant to its Regulations for Handling of Shares.
Voting Rights of a Holder of Shares Representing Less than One Unit
A holder of shares representing less than one unit cannot exercise any voting rights
pertaining to those shares. In calculating the quorum for various voting purposes, the aggregate
number of shares representing less than one unit will be excluded from the number of outstanding
shares. A holder of shares representing one or more whole units will have one vote for each whole
unit represented.
A holder of shares representing less than one unit does not have any rights relating to
voting, such as the right to participate in a demand for the resignation of a director, the right
to participate in a demand for the convocation of a general meeting of shareholders and the right
to join with other shareholders to propose an agenda item to be addressed at a general meeting of
shareholders. In addition, a holder of shares constituting less than one unit does not have the
right to require the Company to issue share certificates for those shares.
However, a holder of shares constituting less than one unit has all other rights of a
shareholder in respect of those shares, including the following rights:
•
to receive annual and interim dividends,
•
to receive shares and/or cash by way of retirement, consolidation, subdivision, conversion, exchange or transfer of shares, company split or merger,
•
to be allotted rights to subscribe for new shares and other securities when such rights are granted to shareholders,
•
to participate in any distribution of surplus assets upon liquidation,
•
to institute a representative action by shareholders, and
•
to demand that a director suspend illegal and certain other acts.
Ordinary and Extraordinary General Meeting of Shareholders
The Company normally holds its ordinary general meeting of shareholders in March of each year
in Ohta-ku, Tokyo or in a neighbouring area. In addition, the Company may hold an extraordinary
general meeting of shareholders whenever necessary by giving at least two weeks' advance notice.
Under the Commercial Code, notice of any shareholders' meeting must be given to each shareholder
having voting rights or, in the case of a non-resident shareholder, to his resident proxy or
mailing address in Japan in accordance with the Company's Regulations for Handling of Shares, at
least two weeks prior to the date of the meeting.
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Voting Rights
A shareholder is generally entitled to one vote per one unit of shares as described in this
paragraph and under "Japanese Unit Share System" above. In general, under the Commercial Code, a
resolution can be adopted at a general meeting of shareholders by a majority of the shares having
voting rights represented at the meeting. The Commercial Code and the Company's Articles of
Incorporation require a quorum for the election of Directors and Corporate Auditors of not less
than one-third of the total number of outstanding shares having voting rights. The Company's
shareholders are not entitled to cumulative voting in the election of Directors. A corporate
shareholder whose outstanding shares are in turn more than one-quarter directly or indirectly owned
by the Company does not have voting rights. Shareholders may exercise their voting rights through
proxies, provided that those proxies are also shareholders who have voting rights.
Pursuant to the Commercial Code and the Company's Articles of Incorporation, a quorum of, not
less than one-third of the outstanding shares with voting rights must be present at a shareholders'
meeting to approve any material corporate actions such as:
•
a reduction of stated capital,
•
amendment of the articles of incorporation (except amendments which the board of directors are
authorized to make under the Commercial Code as described in
"Stock Splits" and "Japanese Unit Share
System" above),
•
the removal of a director or corporate auditor,
•
establishment of a 100% parent-subsidiary relationship by way of share exchange or share transfer,
•
a dissolution, merger or consolidation,
•
a corporate separation,
•
the transfer of the whole or an important part of the Company's business,
•
the taking over of the whole of the business of any other corporation,
•
any issuance of new shares at a "specially favourable" price, stock acquisition rights
(
shinkabu yoyakuken
) with "specially favourable" conditions or bonds with stock acquisition
rights (
shinkabu yoyakuken-tsuki shasai
) with "specially
favourable" conditions to persons other
than shareholders, and
•
release of part of directors' or corporate
auditors' liabilities to their corporation.
At least
two-thirds of the outstanding shares having voting rights present at
the meeting must approve these actions.
The voting rights of holders of ADSs are exercised by the depositary based on instructions from those holders.
Subscription Rights
Holders of shares have no pre-emptive rights. Authorised but unissued shares may be issued at
such times and upon such terms as the board of directors determines, subject to the limitations as
to the issue of new shares at a "specially favourable" price mentioned in "Voting Rights" above.
The board of directors may, however, determine that shareholders be given subscription rights to
new shares, in which case they must be given on uniform terms to all shareholders as of a record
date of which not less than two weeks' prior public notice of the date on which such subscription
rights must be given. Each of the shareholders to whom such rights are given must also be given at
least two weeks' prior notice of the date on which such rights will expire.
Stock Acquisition Rights
The Company may issue stock acquisition rights or bonds with stock acquisition rights (in
relation to which the stock acquisition rights are undetachable). Except where the issue would be
on "specially favourable" conditions mentioned in "Voting Rights" above, the issue of stock
acquisition rights or bonds with stock acquisition rights may be authorised by a resolution of the
board of directors. Subject to the terms and conditions thereof, holders of stock
acquisition rights may acquire a prescribed number of shares by exercising their stock acquisition
rights and paying the exercise price at any time during the exercise period thereof. Upon exercise
of stock acquisition rights, the Company will be obliged to either issue the relevant number of new
shares or transfer the necessary number of existing shares held by it as treasury stock to the
holder. The entitlements accorded to stock acquisition rights attached to bonds are substantially
similar to those accorded to stock acquisition rights issued without being attached to bonds,
provided that, if so determined by the board of directors at the time of its resolution authorising
the issue of the relevant bonds with stock acquisition rights, then, upon exercise of the stock
acquisition rights, their exercise price will be deemed to have been paid by the holder thereof to
the Company in lieu of the Company redeeming the relevant bonds.
Liquidation Rights
In the event of liquidation, the assets remaining after payment of all debts, liquidation
expenses and taxes will be distributed among the shareholders in proportion to the number of shares
they own.
Liability to Further Calls or Assessments
All of the Company's currently outstanding shares, including shares represented by the ADSs,
are fully paid and nonassessable.
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Transfer Agent
Mizuho Trust & Banking Co., Ltd. is the transfer agent for the Company's shares. Mizuho
Trust's office is located at 2-1, Yaesu 1-chome, Chuo-ku, Tokyo, Japan. Mizuho Trust maintains the
Company's register of shareholders and records transfers of record ownership upon presentation of
share certificates.
Record Date
The close of business on December 31 is the record date for the Company's year-end dividends,
if paid. June 30 is the record date for interim dividends, if paid. A holder of shares constituting
one or more whole units who is registered as a holder on the Company's register of shareholders at
the close of business as of December 31 is also entitled to exercise shareholders' voting rights at
the ordinary general meeting of shareholders with respect to the fiscal year ending on December 31.
In addition, the Company may set a record date for determining the shareholders entitled to other
rights and for other purposes by giving at least two weeks' public notice.
The shares generally trade ex-dividend or ex-rights in the Japanese stock exchanges on the
third business day before a record date (or if the record date is not a business day, the fourth
business day prior thereto), for the purpose of dividends or rights offerings.
Repurchase by the Company of Shares
Under the Commercial Code, the Company may acquire its shares for any purposes subject to the
authorization of shareholders at an ordinary general shareholders meeting. In addition, the Company
is authorized to purchase its shares pursuant to a resolution of the board of directors pursuant to
its Articles of Incorporation. The acquisition is subject to the condition that the aggregate
amount of the purchase price must not exceed the amount of the retained earnings available for
dividend payments less the sum of any amount paid or to be paid by way of appropriation of related
earnings and any transfer of retained earnings to stated capital.
In the case of shares listed on a Japanese stock exchange, acquisition shall be made through
the market or by way of tender offer by the close of the following ordinary general meeting, unless
acquisition of the shares from a specified person is authorized by the approval of two-thirds of
outstanding shares having voting rights present at the shareholders' meeting at which a quorum of
at least one-third of the outstanding shares having voting rights must be present.
In addition, the Company may acquire its shares by means of repurchase of any number of shares
constituting less than one unit upon the request of the holder of those shares, as described under
"Japanese Unit Share System" above.
C. Material contracts
All contracts entered into by us during the two years preceding the date of this annual report
were entered into in the ordinary course of business.
D. Exchange controls
(a)
Information with respect to Japanese exchange regulations affecting the Company's
security holders is as follows:
The Foreign Exchange and Foreign Trade Law of Japan, as amended and effective from
April 1, 1998, and the cabinet orders and ministerial
ordinances thereunder (the "Foreign Exchange Regulations") govern certain aspects relating
to the issuance of securities by the Company and the acquisition and holding of such
securities by "non-residents of Japan" and by "foreign investors", as hereinafter defined.
"Non-residents of Japan" are defined as individuals who are not resident in Japan and
corporations whose principal offices are located
outside Japan. Generally, branches and other offices of Japanese corporations located
outside Japan are regarded as non-residents of
Japan, while branches and other offices located within Japan of non-resident corporations
are regarded as residents of Japan. "Foreign
investors" are defined to be (i) individuals not resident in Japan, (ii) corporations which
are organized under the laws of foreign
countries or whose principal offices are located outside Japan, (iii) corporations of which
50% or more of the shares are held by (i) and /
or (ii) above and (iv) corporations in respect of which (a) a majority of the officers are
non-resident individuals or (b) a majority of the
officers having the power to represent the corporation are non-resident individuals.
Issuance of Securities by the Company:
Under the Foreign Exchange Regulations, the issue of securities outside Japan by the
Company is, in principle, not subject to a prior
notification requirement, but subject to a post reporting requirement of the Minister of
Finance. Under the Foreign Exchange Regulations as
currently in effect, payments of principal, premium and interest in respect of securities
and any additional amounts payable pursuant to
the terms thereof may in general be paid when made without any restrictions under the
Foreign Exchange Regulations.
Acquisition of Shares:
In general, the acquisition of shares of stock of a Japanese company listed on any Japanese
stock by a non-resident of Japan from a resident of Japan is not subject to a prior
notification requirement, but subject to a post reporting requirement of the Minister of
Finance by such resident.
In the case where a foreign investor intends to acquire listed shares (whether from a
resident or a non-resident of Japan, from another
foreign investor or from or through a designated securities company) and as a result of
such acquisition the number of shares held, directly or indirectly, by such foreign investor would become 10% or more of the total
outstanding shares of the company, the foreign investor
must generally report such acquisition to the Minister of Finance and other Ministers having
jurisdiction over the business of the subject
company within 15 days from and including the date of such acquisition. In certain
exceptional cases, a prior notification is required in respect
of such acquisition.
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Acquisition of Shares upon Exercise of Rights for Subscription of Shares:
The acquisition by a non-resident of Japan of shares upon exercise of his rights for
subscription of shares is exempted from the notification
and reporting requirements described under "Acquisition of Shares" above.
Dividends and Proceeds of Sales:
Under the Foreign Exchange Regulations currently in effect, dividends paid on, and the
proceeds of sale in Japan of, the shares held by
non-residents of Japan may be converted into any foreign currency and repatriated abroad.
The acquisition of shares by non-resident
shareholders by way of stock splits is not subject to any of the aforesaid notification
requirements.
(b) Reporting of Substantial Shareholdings:
The Securities and Exchange Law of Japan requires any person who has become,
beneficially and solely or jointly, a holder of more than 5% of the total outstanding voting shares of capital stock of a company listed on any Japanese
stock exchange to file with the relevant Local Finance Bureau of the Minister of Finance
within five business days a report concerning such share ownership. A similar report must
also be made in respect of any subsequent change of 1% or more in any such holding. Copies
of any such report must also be furnished to the issuer of such shares and all Japanese
stock exchanges on which the shares are listed. For this purpose, shares issuable exercise
of rights for subscription of shares held by such holder are taken into account in
determining both the size of a holding and a company's total outstanding share capital.
E. Taxation
1. Taxation in Japan
Generally, a non-resident of Japan or non-Japanese corporation ( "Non-Resident Holders")
is subject to Japanese withholding tax on dividends paid by Japanese corporations. Stock splits
are not subject to Japanese income tax. Due to the 2001 Japanese tax legislation, a conversion
of retained earnings or legal reserve (but, not additional paid-in capital, in general) into
stated capital (whether made in connection with a stock split or otherwise) is no longer
treated as a deemed dividend payment to shareholders for Japanese tax purposes. Thus, such a
conversion does not trigger Japanese withholding taxation.
Japan is party to a number of income tax treaties, conventions and agreements,
(collectively "Tax Treaties"), whereby the maximum withholding tax rate for dividend payments
is set at, in most cases, 15% for portfolio investors who are Non-Resident Holders. Specific
countries with which such Tax Treaties have been entered into include Australia, Belgium,
Canada, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands, New
Zealand, Norway, Singapore, Spain, Sweden, Switzerland and the United Kingdom. Pursuant to the
new tax convention between the United States and Japan ratified in March 2004 ("New Tax
Convention"), the withholding tax rate on dividends paid by a Japanese corporation to US
residents or corporations is generally 10%, provided the recipients are portfolio investors who
do not have a permanent establishment in Japan to which the shares with respect to which such
dividends are paid are related and such recipients are qualified US residents eligible to enjoy
treaty benefits. This 10% Japanese withholding tax rate is applicable from July 1, 2004 to
dividends declared thereafter. Under the New Tax Convention, there is no withholding tax on
dividends paid by Japanese Corporations to pension funds which are qualified U.S. residents
eligible to enjoy benefits under the New Tax Conventions unless such dividends are derived from
the carrying on of a business, directly or indirectly, by such pension funds. The 15% Japanese
withholding tax rate under the old tax convention is still applicable to dividends declared
before July 1, 2004. However, under the Japanese Income Tax Law, the temporary rate of Japanese
withholding tax applicable to dividends paid with respect to listed shares, such as those paid
by the Company, to Non-Resident Holders is currently 7% which is applicable for the period from
January 1, 2004 to March 31, 2008 (15% rate(10% for eligible US residents) will apply
thereafter), except for dividends paid to any individual shareholder who holds 5% or more of
the total issued shares for which the applicable rate is 20%. While the treaty rate normally
overrides the domestic rate, due to the so-called preservation doctrine, if the tax rate under
the domestic tax law is lower than that promulgated under the applicable income tax treaty,
then the domestic tax rate is still applicable. If the domestic tax rate applies, as will
generally be the case until March 31, 2008 for most shareholders who are US residents or
corporations, no treaty application is required to be filed.
2. Taxation in the United States
The following is a discussion of material U.S. federal income tax consequences of
purchasing, owning and disposing of Canon shares or ADSs to the
persons described below, but it does not purport to be a comprehensive description of all of
the tax considerations that may be relevant to a particular person's decision to acquire, hold
or dispose of such securities. The discussion applies only if you hold Canon shares or ADSs as
capital assets for U.S.
federal income tax purposes and it does not address special classes of holders, such as:
•
certain financial institutions;
•
insurance companies;
•
dealers and traders in securities or foreign currencies;
•
persons holding Canon shares or ADSs as part of a hedge, straddle,
conversion or other integrated transaction;
•
persons whose functional currency for U.S. federal income tax purposes
is not the U.S. dollar;
•
partnerships or other entities classified as partnerships for U.S.
federal income tax purposes;
•
persons liable for the alternative minimum tax;
•
tax-exempt organizations;
•
persons holding Canon shares or ADSs that own or are deemed to own
10% or more of any class of Canon stock; or
•
persons who acquired Canon shares or ADSs pursuant to the exercise of
any employee stock option or otherwise as compensation.
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This discussion is based on the Internal Revenue Code of 1986, as amended, administrative
pronouncements, judicial decision and final, temporary and proposed Treasury regulations, all as
currently in effect. These laws are subject to change, possibly on a retroactive basis. It is also
based in part on representations by the depositary and assumes that each obligation under the
deposit agreement and any related agreement will be performed in accordance with its terms. Please
consult your own tax advisers concerning the U.S. federal, state, local and foreign tax
consequences of purchasing, owning and disposing of Canon shares or ADSs in your particular
circumstances.
The discussion below applies to you only if you are a beneficial owner of Canon shares or ADSs
and are, for U.S. federal tax purposes:
•
a citizen or resident of the United States;
•
a corporation, or other entity taxable as a corporation, created or organized in or under
the laws of the United States or any political
subdivision thereof; or
•
an estate or trust the income of which is subject to U.S. federal income taxation regardless
of its source.
In general, if you hold ADSs, you will be treated for U.S. federal income tax purposes as the
holder of the underlying shares represented by those ADSs. Accordingly, no gain or loss will be
recognized if you exchange ADSs for the underlying shares represented by those ADSs.
The U.S. Treasury has expressed concerns that parties to whom ADSs are pre-released may be
taking actions that are inconsistent with the claiming of foreign tax credits for U.S. holders of ADSs. Such actions would also be inconsistent with the
claiming of the reduced rate of tax applicable to dividends received by certain non-corporate U.S.
holders. Accordingly, the analysis of the creditability of Japanese taxes and the reduced rates of
taxation applicable to dividends received by certain non-corporate U.S. holders, both as described
below, could be affected by actions that may be taken by parties to whom ADSs are pre-released.
This discussion assumes that Canon was not a passive foreign investment company
for 2005, as described below.
Taxation of Distributions
Distributions paid on Canon Shares or ADSs, other than certain pro rata distributions of
common shares, to the extent paid out of Canon's current or accumulated earnings and profits, as
determined under U.S. federal income tax principles, will be treated as dividends. The amount of
a dividend will include any amounts withheld by Canon or its paying agent in respect of Japanese
taxes. The amount of the dividend will be treated as foreign-source dividend income to you and
will not be eligible for the dividends-received deduction generally allowed to U.S. corporations.
Subject to applicable limitations that may vary depending upon a U.S. holder's individual
circumstances and the concerns expressed by the U.S. Treasury, dividends paid to certain
non-corporate holders in taxable years beginning before January 1, 2009 will be taxable at a
maximum rate of 15%. Non-corporate U.S. holders should consult their own tax advisers to
determine whether they are subject to any special rules that limit their ability to be taxed at
this favorable rate.
Dividends paid in Japanese yen will be included in your income in a U.S. dollar amount
calculated by reference to the exchange rate in effect on the
date of receipt of the dividend by you, in the case of Canon shares, or by the depository, in the
case of ADSs, regardless of whether the payment is in fact converted into U.S. dollars. If the
dividend is converted into U.S. dollars on the date of receipt, you generally should not be
required to recognize foreign currency gain or loss in respect of the dividend income. You may
have foreign currency gain or loss if you do not convert the amount of such dividend into U.S.
dollars on the date of receipt.
Japanese taxes withheld from cash dividends on Canon shares or ADSs will be creditable
against your U.S. federal income tax liability, subject to
applicable limitations that may vary depending upon your circumstances and the concerns expressed
by the U.S. Treasury. Instead of claiming a credit, you may, at your election, deduct such
Japanese taxes in computing your taxable income, subject to generally applicable limitations under
U.S. law. The limitation on foreign taxes eligible for credit is calculated separately with
respect to specific classes of income. You should consult your own tax adviser to determine
whether you are subject to any special rules that limit your ability to make effective use of
foreign tax credits.
Sale and Other Disposition of Canon Shares or ADSs
For U.S. federal income tax purposes, gain or loss you realize on the sale or other
disposition of Canon shares or ADSs will be capital gain or loss,
and will be long-term capital gain or loss if you held the Canon shares or ADSs for more than one
year. The amount of your gain or loss will be equal to the difference between your tax basis in the Canon shares or ADSs disposed of and the amount
realized on the disposition. Such gain or loss will generally
be U.S. source gain or loss for foreign tax credit purposes.
Passive Foreign Investment Company Rules
Canon believes that it was not a passive foreign investment company ("PFIC") for U.S. federal
income tax purposes for 2005. However, since PFIC status depends upon the composition of Canon's
income and assets and the market value of its assets (including, among others, goodwill and equity
investments in less than 25 % owned entities) from time to time, there can be no assurance that
Canon will not be considered a PFIC for any taxable year. If Canon were treated as a PFIC for any
taxable year during which you held Canon shares or ADSs, certain adverse taxconsequences could
apply to you.
If Canon were treated as a PFIC for any taxable year, gain recognized by you on the sale or
other disposition of Canon shares or ADSs would be allocated
ratably over you holding period for such securities. The amounts allocated to the taxable year of
the sale or other disposition and to any year before Canon became a PFIC would be taxed as
ordinary income. The amount allocated to each other taxable year would be subject to tax at the
highest rate in effect
for individuals or corporations, as appropriate, and an interest charge would be imposed on the
tax liability attributable to such allocated amounts. Further,
any distribution in respect of Canon shares or ADSs in excess of 125 % of the average of the
annual distributions on such securities received by you
during the preceding three years or your holding period, whichever is shorter, would be subject to
taxation as described above. Certain elections (including
a mark-to-market election) may be available to you that may mitigate the adverse tax consequences
resulting from PFIC status.
In addition, if Canon were treated as a PFIC in a taxable year in which it pays a dividend or
the prior taxable year, the 15% dividend rate discussed above with respect to dividends paid to
certain non-corporate U.S. holders would not apply.
56
Table of Contents
Information Reporting and Backup Withholding
Payment of dividends and sales proceeds that are made within the United States or through
certain U.S.-related financial intermediaries generally are
subject to information reporting and to backup withholding unless you are a corporation or other
exempt recipient or, in the case of backup withholding, you provide a correct taxpayer
identification number and certify that no loss of exemption from backup withholding has occurred.
The amount of any backup withholding from a payment to you will be allowed as a credit
against your U.S. federal income tax liability and may
entitle you to a refund, provided that the required information is furnished to the Internal
Revenue Service.
F. Dividends and paying agents
Not applicable.
G. Statement by experts
Not applicable.
H. Documents on display
According to the Securities Exchange Act of 1934, as amended, the Company is subject to the
requirements of informational disclosure. The Company files
various reports and other information, including Form 20-F and Annual Reports, with the Securities
Exchange Commission and the New York Stock Exchange. These reports may be inspected at the
following sites.
Securities Exchange Commission:
450 Fifth Street, N.W., Washington D.C. 20549
New York Stock Exchange:
20 Broad Street, New York, New York 10005
Form 20-F
is also available at the Electronic Data Gathering, Analysis, Retrieval system (EDGAR) website which is maintained by the Securities Exchange Commission.
Securities Exchange Commission Home Page:
http://www.sec.gov
I. Subsidiary information
Not applicable.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Market risk exposures
Canon is exposed to market risks, including changes in foreign currency exchange rates,
interest rates and prices of marketable securities and investments. In order to hedge the risks of
changes in foreign currency exchange rates and interest rates, Canon uses derivative financial
instruments.
57
Table of Contents
Equity price risk
Canon holds marketable securities included in current assets as short-term investments, which
consists generally of highly-liquid and low-risk instruments. Investments included in noncurrent
assets are held as long-term investments. Canon does not hold marketable securities and investments
for trading purposes.
Maturities and fair values of such marketable securities and investments were as follows at
December 31, 2005 and 2004.
Available-for-sale securities
2005
2004
Cost
Fair value
Cost
Fair value
(Millions of yen)
Due within one year
¥
71
¥
71
¥
301
¥
341
Due after one year through five years
1,811
3,243
1,607
2,191
Due after five years
3,352
3,376
1,049
1,047
Equity securities
11,474
26,550
10,302
26,950
¥
16,708
¥
33,240
¥
13,259
¥
30,529
Held-to-maturity securities
2005
2004
Cost
Fair value
Cost
Fair value
(Millions of yen)
Due after one year through five years
¥
20,961
¥
20,961
¥
21,460
¥
21,460
Foreign currency exchange rate and interest rate risk
Canon operates internationally, exposing it to the risk of changes in foreign currency
exchange rates and interest rates. Derivative financial instruments are comprised principally of
foreign currency exchange contracts and interest rate swaps utilized by the Company and certain of
its subsidiaries to reduce these risks. Canon assesses foreign currency exchange rate risk and
interest rate risk by continually monitoring changes in these exposures and by evaluating hedging
opportunities. Canon does not hold or issue derivative financial instruments for trading purposes.
Canon is also exposed to credit-related losses in the event of non-performance by counterparties
to derivative financial instruments, but it is not expected that any counterparties will fail to
meet their obligations, because most of the counterparties are internationally recognized financial
institutions and contracts are diversified across a number of major financial institutions.
Canon's international operations expose Canon to the risk of changes in foreign currency
exchange rates. Canon uses foreign exchange contracts to manage certain foreign currency exchange
exposures principally from the exchange of U.S. dollar and euro into Japanese yen. These contracts
are primarily used to hedge the foreign currency exposure of forecasted intercompany sales and
intercompany trade receivables which are denominated in foreign currencies. In accordance with
Canon's policy, a specific portion of foreign currency exposure resulting from forecasted
intercompany sales are hedged using foreign exchange contracts which principally mature within
three months.
The following table provides information about Canon's major derivative financial instruments
related to foreign currency exchange transactions existing at December 31, 2005. All of the foreign
exchange contracts described in the following table have a contractual maturity date in 2006.
Millions of yen
U.S.$
euro
Others
Total
Forwards to sell foreign currencies:
Contract amounts
¥
361,072
251,195
32,921
645,188
Estimated fair value
(4,829
)
(1,459
)
(352
)
(6,640
)
Forwards to buy foreign currencies:
Contract amounts
¥
30,033
5,974
10,417
46,424
Estimated fair value
17
(296
)
(893
)
(1,172
)
Canon's exposure to the risk of changes in interest rates relates primarily to its debt
obligations. The variable-rate debt obligations expose Canon to variability in their cash flows
due to change in interest rates. To manage the variability in cash flows caused by interest rate
changes, Canon enters into interest rate swaps when it is determined to be appropriate based on
market conditions. The interest rate swaps change variable-rate debt obligations to fixed-rate
debt obligations by primarily entering into pay-fixed, receive-variable interest rate swaps.
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Table of Contents
Derivative financial instruments designated as fair value hedges principally relate to
interest rate swaps associated with fixed-rate debt obligations. Changes in fair values of the
hedged debt obligations and derivative instruments designated as fair value hedges of these debt
obligations are recognized in other income (deductions). There is no hedging ineffectiveness or net
gains or losses excluded from the assessment of hedge effectiveness for fiscal 2004 and 2003 as the
critical terms of the interest rate swaps match the terms of the hedged debt obligations. Canon had
no fair value hedges in 2005.
Changes in the fair value of derivative financial instruments designated as cash flow hedges,
including foreign exchange contracts associated with forecasted intercompany sales and interest
rate swaps associated with variable rate debt obligations, are reported in accumulated other
comprehensive income (loss). These amounts are subsequently reclassified into earnings through
other income (deductions) in the same period as the hedged items affect earnings. Substantially all
amounts recorded in accumulated other comprehensive income (loss) at year-end are expected to be
recognized in earnings over the next twelve months. Canon excludes the time value component from
the assessment of hedge effectiveness.
The amounts of the hedging ineffectiveness are not material for the years ended December 31,
2005, 2004 and 2003. The amounts of net gains or losses excluded from the assessment of hedge
effectiveness which are recorded in other income (deductions) are net losses of Yen 3,725 million,
Yen 2,096 million and Yen 490 million for the years ended December 31, 2005, 2004 and 2003,
respectively.
Canon has entered into certain foreign currency exchange contracts to manage its foreign
currency exposures. These foreign currency exchange contracts have not been designated as hedges.
Accordingly, the changes in fair values of the contracts are recorded in earnings immediately.
For debt obligations, the table below presents principal cash flows by expected maturity dates
and related weighted average interest rates, as of December 31, 2005 and 2004.
Long-term debt (including due within one year)
Weighted Average
Expected maturity date
interest
Estimated
rates*
Total
2006
2007
2008
2009
2010
Thereafter
fair value
(Millions of yen except interest rate data)
Year ended
December 31, 2005:
Japanese yen notes
2.61
%
¥
20,000
—
¥
10,000
¥
10,000
—
—
—
¥
20,848
Japanese yen convertible
debentures
1.30
649
—
—
649
—
—
—
3,052
Other long-term
debt
2.40
11,425
¥
4,992
3,318
1,702
¥
895
¥
417
¥
101
11,294
Total
¥
32,074
¥
4,992
¥
13,318
¥
12,351
¥
895
¥
417
¥
101
¥
35,194
Weighted Average
Expected maturity date
interest
Estimated
rates*
Total
2005
2006
2007
2008
2009
Thereafter
fair value
(Millions of yen except interest rate data)
Year ended December 31, 2004:
Japanese yen notes
2.46
%
¥
25,200
¥
5,200
—
¥
10,000
¥
10,000
—
—
¥
26,559
Japanese yen convertible
debentures
1.28
1,796
309
—
—
1,487
—
—
6,634
Other long-term
debt
2.38
11,534
4,370
¥
5,046
1,401
587
¥
105
¥
25
11,427
Total
¥
38,530
¥
9,879
¥
5,046
¥
11,401
¥
12,074
¥
105
¥
25
¥
44,620
Note:
All long-term debt as of December 31, 2005, is fixed
rate debt. All long-term debt as of December 31, 2004,  is fixed
rate debt except loans, principally from banks which include both fixed
and floating rate debt.
Item 12. Description of Securities Other than Equity Securities
Not applicable.
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Table of Contents
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
As a result of amendments to the Japanese Commercial Code which became effective on October 1,
1982 (the "1982 Amendments"), the Deposit Agreement dated May 1, 1969, which constituted the
American Depositary Receipts for 10,000,000 ADSs, each ADS representing five shares, was amended
and restated as of October 1, 1982 (the "amended Deposit Agreement").
Under the 1982 Amendments, the Company was required to adopt a "unit" of shares
("tan-i-kabu"). At its annual meeting of shareholders held on March 30,
1982, the Company adopted 1,000 shares as one unit, effective from October 1, 1982.
Recent amendments to the Japanese Commercial Code abolished the unit share system called
"tan-i-kabu" as of October 1, 2001, and introduced a new unit share system called "tangen-kabu"
(together with the 1982 Amendments, the "Amendments"). Pursuant to these legal changes, the Company
was deemed to have amended its Articles of Incorporation in October 2001, so that 1,000 shares
constituted one new unit. The Commercial Code permits the Board of Directors to reduce the number
of shares that will constitute a new unit or abolish the new unit share system entirety by amending
the Company's Articles of Incorporation without approval by shareholders. The Board of Directors of
the Company resolved to reduce the number of shares per unit to 100 shares and its Articles of
Incorporation has been amended accordingly. The number of shares constituting a new unit may not
exceed 1,000 shares or one-two hundredths (1/200) of the number of all issued shares.
Under the unit share system, shareholders have one voting right for each unit of shares they
hold. Shares not constituting a full unit will carry all shareholders' rights except for those
relating to voting rights.
Pursuant to the Amendments, the Company is deemed to have amended its Articles of
Incorporation so that no share certificates will be issued with respect to any shares constituting
less than one unit. Consequently, no certificates for shares other than a full unit or an integral
multiple thereof
will be issued unless the Company determines that it is necessary to issue such certificates for
protection of the holders of shares constituting less than one
unit. As the transfer of shares normally requires delivery of the relevant share certificates, any
fraction of a unit for which no share certificates are issued
will not be transferable.
A holder of shares constituting less than one unit may at any time require the Company
(through the participating institution in the case of a beneficial
shareholder under the central clearing system) to purchase such shares at the last selling price of
a share as reported by the Tokyo Stock Exchange, Inc. on the day when such request is made.
Shareholders (including beneficial owners) who own less than one unit of shares may request
that Company sell them a number of shares which, when added to their less than one unit shares,
would equal one unit of shares; provided, however, that the Company is not obliged to do so if the
Company does not own its own shares in the number which it is requested to sell.
A holder of shares constituting less than one unit is entitled as a shareholder to the rights
(i) to receive distribution of dividends of profit or interest, (ii) to receive shares and/or cash
by way of retirement, consolidation, division, conversion, exchange or transfer of shares, company
split or merger, (iii) to be allotted rights to subscribe for new shares and other securities when
such rights are granted to shareholders; and (iv) to participate in any distribution of surplus
assets upon liquidation. Such holder cannot exercise any voting rights pertaining to those shares.
For calculation of the quorum for various voting purposes, the aggregate number of shares
constituting less than one unit will be excluded from the number of voting rights.
As a result of the Amendments, the depositary under the Deposit Agreement may be unable to
deliver share certificates with respect to those shares
otherwise deliverable upon the surrender of ADRs which do not constitute one or more complete
units. In such case, the amended Deposit Agreement provides that the depositary will promptly
advise the holder of the amount of such shares, deliver to the holder a new ADR evidencing such
shares, and notify the holder of the additional amount of ADRs which the holder must surrender in order for the depositary to effect
delivery of share certificates for all of shares represented by the holder's ADSs.
Effective from March 16, 1998, the Company changed the ratio of ADSs to shares from five
shares to one share. In this regard, four additional ADSs for
each ADS held were distributed to holders of ADS. Existing ADRs remain valid and do not need to be
exchanged for new ones.
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Table of Contents
Item 15. Controls and Procedures
Evaluation of disclosure controls and procedures
As of December 31, 2005, Canon, under the supervision and with the participation of its
management, including the chief executive officer and the chief financial officer, performed an
evaluation of the effectiveness of its disclosure controls and procedures. Canon's management
necessarily applied its judgment in assessing the costs and benefits of such controls and
procedures, which by their nature can provide only reasonable assurance regarding management's
control objectives. Based on this evaluation, Canon's chief executive officer and chief financial
officer concluded that Canon's disclosure controls and procedures are effective at the reasonable
assurance level for gathering, analyzing and disclosing the information Canon is required to
disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods
specified in the SEC's rules and forms.
Changes in internal controls over financial reporting
There has been no change in Canon's internal control over financial reporting that occurred
during the period covered by this Annual Report that has materially affected, or is reasonably
likely to materially affect, its internal control over financial reporting.
Item 16A. Audit Committee Financial Expert
Canon's Board of Directors has determined that Kunihiro Nagata qualifies
as an "audit committee financial expert" as defined by the rules of the SEC. Mr. Nagata began his
career at Canon in 1970, and since that time has worked in the field of finance and accounting for
nearly thirty years. From 1996 to 1999, Mr. Nagata served as a senior manager of the Accounting
Planning & Administration Division, the division responsible for Canon's consolidated reporting.
Mr. Nagata was elected as one of Canon's corporate auditors at an ordinary general meeting of
shareholders held in March 2004. See Item 6.A. for additional information regarding Mr. Nagata.
Item 16B. Code of Ethics
Canon maintains a "Canon Group Code of Conduct", or Code of Conduct, applicable to all
executives and employees. The Code of Conduct sets forth provisions relating to honest and ethical
conduct (including the handling of conflicts of interest), compliance with applicable laws, rules
and regulations and accountability for adherence to the provisions of the Code of Conduct. In
addition, on March 31, 2004, the Board of Directors adopted a "Code of Ethics" as a supplement to
the Code of Conduct. This Code of Ethics applies to Canon's President and Chief Executive Officer,
each member of the Board of Directors (which includes the Chief Financial Officer) and general
managers belonging to Canon's accounting headquarters. The Code of Ethics requires full, fair,
accurate, timely and understandable disclosure in reports and documents that Canon files with or
submits to the SEC and in Canon's other communications with the public, prompt internal reporting
of violations of the Code of Conduct or Code of Ethics, and accountability for adherence to their
provisions. Both the Code of Conduct and the Code of Ethics have been filed as exhibits to this
Annual Report.
Item 16C. Principal Accountant Fees and Services
Policy on Pre-Approval of Audit and Non-Audit Services of Independent Auditors
Canon's board of corporate auditors consisting of five members, including three outside
corporate auditors, is responsible for the oversight of the services of independent auditors. The
board of corporate auditors has established Pre-Approval Policies and Procedures for Audit and
Non-Audit Services, effective as of May 28, 2003. These policies and procedures govern the board
of corporate auditors' review and approval of the board of director's engagement of Canon's
external auditors to render audit or non-audit services. Non-audit services include audit-related
services, tax services and other services, as described in greater detail below under "Fees and
Services". Canon and any affiliate controlled by Canon directly, indirectly or through one or more
intermediaries must follow these policies and procedures before any engagement of Canon's
independent accountants for U.S. securities law reporting purposes.
The policies and procedures stipulate three means by which audit and non-audit services may be
pre-approved, depending on the content of and the fee for the services.
•
All services provided to Canon necessary to perform an annual or
semi-annual audit or review to comply with the standards of the
Public Company Accounting Oversight Board (United States), in any
jurisdiction, including tax services and accounting consultation
necessary to comply with the standards of the Public Company
Accounting Oversight Board (United States) in those jurisdictions,
and any engagement of an Independent Registered Public Accounting
Firm for any audit or non-audit service involving estimated fees
exceeding Yen 10,000,000 per single engagement must be approved by
the full board of corporate auditors.
•
Certain other services may be pre-approved under detailed
categories of audit and non-audit services established annually by
the board of corporate auditors, as long as those services do not
exceed specified maximum yen limits for aggregate fees relating to
each of those categories. Any engagement of an Independent
Registered Public Accounting Firm by these means must be reported
to the board of corporate auditors at its next regularly scheduled
meeting.
•
For services that are not covered by the above two means of
pre-approval, the board of corporate auditors has delegated
pre-approval authority to the Chairman of the board of corporate
auditors. Any engagement of an Independent Registered Public
Accounting Firm by the Chairman is required to be reported to the
board of corporate auditors at its next regularly scheduled
meeting.
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Table of Contents
Additional services may be pre-approved by the board of corporate auditors on an individual basis.
No services were provided for which pre-approval was waived pursuant to paragraph (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X.
Fees and Services.
The following table discloses the aggregate fees accrued or paid to Canon's principal
accountant for each of the last two fiscal years and briefly describes the services performed:
Year ended
December 31, 2005
Year ended
December 31, 2004
(Millions of yen)
Audit fees
¥
968
¥
690
Audit-related fees
439
74
Tax fees
49
32
All other fees
92
90
Total
¥
1,548
¥
886
Audit fees
include fees billed for professional services rendered for audits of Canon's annual
consolidated financial statements, review of consolidated quarterly financial statements,
statutory audits of the Company and its subsidiaries.
Audit-related fees
include fees billed for assurance and related services such as due diligence,
accounting consultations and audits in connection with
mergers and acquisitions, employee benefit plan audits, internal control reviews, and
consultations concerning financial accounting and reporting standards.
Tax fees
include fees billed for services related to tax compliance, including the preparation
of tax returns and claims for refund, tax planning and tax advice, including assistance with tax
audits and appeals, advice related to mergers and acquisitions, tax services for employee
benefit plans and assistance with respect to requests for rulings from tax authorities.
All other fees
include fees billed primarily for services rendered with respect to learning
products and services.
Ernst & Young ShinNihon served as Canon's principal accountant for fiscal 2005 and 2004.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Canon is relying on the general exemption contained in Rule 10A-3(c)(3) under the Exchange
Act. Because of such reliance, Canon does not have an audit committee which can act independently
and satisfy the other requirements of Rule 10A-3 under the Exchange Act.
According to Rule 10A-3 under the Exchange Act and NYSE listing standards, Canon's board of
corporate auditors has been identified to act in place of an audit committee. The board of
corporate auditors meets the following requirements of the general exemption contained in Rule
10A-3(c)(3):
•
the board of corporate auditors is established pursuant to applicable Japanese law and Canon's
Articles of Incorporations;
•
under Japanese legal requirements, the board of corporate auditors is separate from the board of
directors;
•
the board of corporate auditors is not elected by the management of Canon and no executive
officer of Canon is a member of the board of corporate auditors;
•
all of the members of the board of corporate auditors meet specific independence requirements
from Canon and the Canon Group, the management and the auditing firm, as set forth by Japanese
legal provisions;
•
the board of corporate auditors, in accordance with and to the extent permitted by Japanese law,
is responsible for the appointment, retention and oversight of the work of Canon's external
auditors engaged for the purpose of issuing audit reports on Canon's annual financial statements;
•
the board of corporate auditors adopted a complaints procedure (which became effective prior to
July 31, 2005) in accordance with Rule 10A-3(b)(3) of the Exchange Act;
•
the board of corporate auditors is authorized to engage independent counsel and other advisers,
as it deems appropriate; and
•
the board of corporate auditors is provided for appropriate
funding for payment of (i) compensation to Canon's external auditors
engaged for the purpose of issuing audit reports on Canon's
annual financial statements, (ii) compensation to independent counsel
and other advisers engaged by the board of corporate auditors, and
(iii) ordinary administrative expenses of the board of corporate
auditors in carrying out its duties.
Canon's reliance on Rule 10A-3(c)(3) does not, in its opinion, materially adversely affect the
ability of its board of corporate auditors to act independently
and to satisfy the other requirements of Rule 10A-3.
62
Table of Contents
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The
following table sets forth, for each of the months indicated, the total number of shares purchased by us or on our behalf or any affiliated purchaser,
the average price paid per share, the number of shares purchased as
part of a publicly announced repurchase plan or program, the maximum
number of shares or approximate Japanese Yen value that may yet be purchased under the plans or programs.
(a) Total Number of
(b) Average Price
(c) Total Numbers of
(d) Maximum Numbers
Shares Purchased
Paid per Share
Shares Purchased as
of Shares that May
Part of Publicly
Yet Be Purchased
Announced Plans or
Under the Plans or
(Shares)
(Yen)
Programs
Programs
January 1 - January 31
1,938
5,418
—
—
February 1 - February 28
2,853
5,455
—
—
March 1 - March 31
1,614
5,558
—
—
April 1 - April 30
2,528
5,736
—
—
May 1 - May 31
1,658
5,641
—
—
June 1 - June 30
2,867
5,909
—
—
July 1 - July 31
1,986
5,959
—
—
August 1 - August 31
1,100
5,610
—
—
September 1 - September 30
2,776
5,675
—
—
October 1 - October 31
3,488
6,167
—
—
November 1 - November 30
1,491
6,450
—
—
December 1 - December 31
1,861
6,963
—
—
Canon currently does not have any publicly announced repurchase plans or programs. All of the
purchase shown above represent with the purchase of fractional shares from fractional share owners,
in accordance with the Japanese Commercial Code.
63
Table of Contents
PART III
Item 17. Financial Statements
Consolidated financial statement of Canon Inc. and Subsidiaries:
Page number
Report of Ernst & Young ShinNihon, Independent Registered Public Accounting Firm
65
Report of KPMG AZSA & Co., Independent Registered Public Accounting Firm
66
Consolidated Balance Sheets as of December 31, 2005 and 2004
67
Consolidated Statements of Income for the years ended December
31, 2005, 2004 and 2003
68
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2005, 2004 and 2003
69
Consolidated Statements of Cash Flows for the years ended
December 31, 2005, 2004 and 2003
70
Notes to Consolidated Financial Statements
71
Schedule:
Schedule II Valuation and Qualifying Accounts for the years ended
December 31, 2005, 2004 and 2003
114
All other schedules are omitted as permitted by the rules and regulations of the Securities and Exchange Commission as not applicable.
64
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Canon Inc.
We have audited the accompanying consolidated balance sheets of Canon Inc. and subsidiaries (the
"Company") as of December 31, 2005 and 2004, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the two years in the period ended December 31,
2005, all expressed in Japanese yen. Our audits also included the financial statement schedule
listed in the Index at Item 17 for each of the two years in the period ended December 31, 2005.
These financial statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. We
were not engaged to perform an audit of the Company's internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
The Company's consolidated financial statements do not disclose segment information required by
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information." In our opinion, disclosure of segment information is required by U.S.
generally accepted accounting principles.
In our opinion, except for the omission of segment information as discussed in the preceding
paragraph, the 2005 and 2004 financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Canon Inc. and subsidiaries at December 31, 2005
and 2004, and the consolidated results of their operations and their cash flows for each of the two
years in the period ended December 31, 2005 in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule for each of the two
years in the period ended December 31, 2005, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young ShinNihon
Tokyo, Japan
January 26, 2006
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Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Canon Inc.:
We have audited the accompanying consolidated statements of income, stockholders' equity and cash
flows (expressed in yen) of Canon Inc. and subsidiaries for the year ended December 31, 2003. In
connection with our audit of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
The Company's consolidated financial statements do not disclose certain information required by
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information". In our opinion, disclosure of this information is required by U.S.
generally accepted accounting principles.
In our opinion, except for the omission of the segment information as discussed in the preceding
paragraph, the consolidated financial statements referred to above present fairly, in all material
respects, the results of operations and the cash flows of Canon Inc. and subsidiaries for the year
ended December 31, 2003, in conformity with U.S. generally accepted accounting principles.
Also in our opinion, the 2003 related financial statement schedule, when considered in relation to
the 2003 basic consolidated financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ KPMG AZSA & Co.
Tokyo, Japan
January 28, 2004
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Canon Inc. and Subsidiaries
Consolidated Balance Sheets
December 31
2005
2004
(Millions of yen)
Assets
Current assets:
Cash and cash equivalents
¥
1,004,953
¥
887,774
Marketable securities
(Note 3)
172
1,554
Trade receivables, net
(Note 4)
689,427
602,790
Inventories
(Note 5)
510,195
489,128
Prepaid expenses and other current assets
(Notes 7 and 13)
253,822
250,906
Total current assets
2,458,569
2,232,152
Noncurrent receivables
(Note 19)
14,122
14,567
Investments
(Notes 3 and 10)
104,486
97,461
Property, plant and equipment, net
(Notes 6, 7 and 10)
1,148,821
961,714
Other assets
(Notes 7, 8, 9, 12 and 13)
317,555
281,127
Total assets
¥
4,043,553
¥
3,587,021
Liabilities and stockholders' equity
Current liabilities:
Short-term loans and current portion of long-term
debt
(Note 10)
¥
5,059
¥
9,879
Trade payables
(Note 11)
505,126
465,396
Income taxes
(Note 13)
110,844
105,565
Accrued expenses
(Note 19)
248,205
205,296
Other current liabilities
(Note 13)
209,394
197,029
Total current liabilities
1,078,628
983,165
Long-term debt, excluding current installments
(Note
10)
27,082
28,651
Accrued pension and severance cost
(Note 12)
80,430
132,522
Other noncurrent liabilities
(Note 13)
52,395
45,993
Total liabilities
1,238,535
1,190,331
Minority interests
200,336
186,794
Commitments and contingent liabilities
(Note 19)
Stockholders' equity:
Common stock
Authorized
2,000,000,000 shares;
issued 888,742,779 shares in 2005 and
887,977,251 shares in 2004
(Note 14)
174,438
173,864
Additional paid-in capital
(Note 14)
403,246
401,773
Legal reserve
(Note 15)
42,331
41,200
Retained earnings
(Note 15)
2,018,289
1,699,634
Accumulated other comprehensive income (loss)
(Note 16)
(28,212
)
(101,312
)
Treasury stock, at cost 1,145,682 shares in 2005
and 1,120,867 shares in 2004
(5,410
)
(5,263
)
Total stockholders' equity
2,604,682
2,209,896
Total liabilities and stockholders' equity
¥
4,043,553
¥
3,587,021
See accompanying notes to consolidated financial statements.
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Canon Inc. and Subsidiaries
Consolidated Statements of Income
Year ended December 31
2005
2004
2003
(Millions of yen)
Net sales
¥
3,754,191
¥
3,467,853
¥
3,198,072
Cost of sales
(Notes 9, 12 and 19)
1,935,148
1,754,510
1,589,172
Gross profit
1,819,043
1,713,343
1,608,900
Selling, general and administrative
expenses
(Notes 1, 9, 12 and 19)
949,524
894,250
895,336
Research and development expenses
286,476
275,300
259,140
Operating profit
583,043
543,793
454,424
Other income (deductions):
Interest and dividend income
14,252
7,118
9,284
Interest expense
(1,741
)
(2,756
)
(4,627
)
Other, net
(Notes 1, 3 and 18)
16,450
3,961
(10,911
)
28,961
8,323
(6,254
)
Income before income taxes and
minority interests
612,004
552,116
448,170
Income taxes
(Note 13)
212,785
194,014
162,653
Income before minority interests
399,219
358,102
285,517
Minority interests
15,123
14,758
9,787
Net income
¥
384,096
¥
343,344
¥
275,730
(Yen)
Net income per share
(Note 17)
:
Basic
¥
432.94
¥
387.80
¥
313.81
Diluted
432.55
386.78
310.75
Cash dividends per share
100.00
65.00
50.00
See accompanying notes to consolidated financial statements.
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Canon Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Year ended December 31
2005
2004
2003
(Millions of yen)
Common stock:
Balance at beginning of year
¥
173,864
¥
168,892
¥
167,242
Conversion of convertible debt
574
4,972
1,650
Balance at end of year
174,438
173,864
168,892
Additional paid-in capital:
Balance at beginning of year
401,773
396,939
394,088
Conversion of convertible debt and other
574
4,966
1,649
Stock exchanged under exchange offering
—
114
—
Capital transactions by consolidated
subsidiaries and affiliated companies
899
(246
)
1,202
Balance at end of year
403,246
401,773
396,939
Legal reserve:
Balance at beginning of year
41,200
39,998
38,803
Transfers from retained earnings
1,131
1,202
1,195
Balance at end of year
42,331
41,200
39,998
Retained earnings:
Balance at beginning of year
1,699,634
1,410,442
1,164,445
Net income for the year
384,096
343,344
275,730
Cash dividends
(64,310
)
(52,950
)
(28,538
)
Transfers to legal reserve
(1,131
)
(1,202
)
(1,195
)
Balance at end of year
2,018,289
1,699,634
1,410,442
Accumulated other comprehensive income
(loss):
Balance at beginning of year
(101,312
)
(143,275
)
(166,467
)
Other comprehensive income (loss) for
the year, net of tax
73,100
41,963
23,192
Balance at end of year
(28,212
)
(101,312
)
(143,275
)
Treasury stock:
Balance at beginning of year
(5,263
)
(7,451
)
(6,161
)
Repurchase, net
(147
)
(503
)
(1,290
)
Stock exchanged under exchange offering
—
2,691
—
Balance at end of year
(5,410
)
(5,263
)
(7,451
)
Total stockholders' equity
¥
2,604,682
¥
2,209,896
¥
1,865,545
Disclosure of comprehensive income:
Net income for the year
¥
384,096
¥
343,344
¥
275,730
Other comprehensive income (loss) for
the year, net of tax
(Note 16)
:
Foreign currency translation
adjustments
53,979
4,050
(15,277
)
Net unrealized gains and losses on
securities
(1,397
)
686
7,952
Net gains and losses on derivative
instruments
(481
)
(396
)
37
Minimum pension liability adjustments
20,999
37,623
30,480
Other comprehensive income (loss)
73,100
41,963
23,192
Total comprehensive income for the year
¥
457,196
¥
385,307
¥
298,922
See accompanying notes to consolidated financial statements.
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Canon Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Year ended December 31
2005
2004
2003
(Millions of yen)
Cash flows from operating activities:
Net income
¥
384,096
¥
343,344
¥
275,730
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
225,941
192,692
183,604
Loss on disposal of property, plant and
equipment
13,784
24,597
12,639
Deferred income taxes
(766
)
9,060
(3,035
)
Increase in trade receivables
(48,391
)
(53,595
)
(36,638
)
(Increase) decrease in inventories
27,558
(40,050
)
(15,823
)
Increase in trade payables
16,018
65,873
1,129
Increase in income taxes
1,998
21,689
3,441
Increase in accrued expenses
31,241
8,196
37,131
Increase (decrease) in accrued pension
and severance cost
(16,221
)
(16,924
)
29,445
Other, net
(29,580
)
6,647
(21,974
)
Net cash provided by operating activities
605,678
561,529
465,649
Cash flows from investing activities:
Purchases of fixed assets
(395,055
)
(256,714
)
(199,720
)
Proceeds from sale of fixed assets
14,827
7,431
9,354
Purchases of available-for-sale securities
(5,680
)
(388
)
(249
)
Purchases of held-to-maturity securities
—
(21,544
)
—
Proceeds from sale of available-for-sale
securities
12,337
9,735
6,544
Acquisitions of subsidiaries, net of cash
acquired
(17,657
)
—
—
Proceeds from sale of subsidiary common
stock
—
9,731
—
Purchases of other investments
(19,531
)
(8,628
)
(24,341
)
Other, net
9,618
7,410
8,464
Net cash used in investing activities
(401,141
)
(252,967
)
(199,948
)
Cash flows from financing activities:
Proceeds from issuance of long-term debt
1,716
2,115
4,132
Repayments of long-term debt
(15,187
)
(43,175
)
(25,301
)
Decrease in short-term loans
(12,011
)
(3,046
)
(49,224
)
Dividends paid
(64,310
)
(52,950
)
(28,538
)
Purchases of treasury stock, net
(147
)
(494
)
(1,071
)
Other, net
(4,000
)
(4,718
)
(2,037
)
Net cash used in financing activities
(93,939
)
(102,268
)
(102,039
)
Effect of exchange rate changes on cash and
cash equivalents
6,581
(8,818
)
5,365
Net increase in cash and cash equivalents
117,179
197,476
169,027
Cash and cash equivalents at beginning of
year
887,774
690,298
521,271
Cash and cash equivalents at end of year
¥
1,004,953
¥
887,774
¥
690,298
Supplemental disclosure for cash flow
information
(Note 21)
:
Cash paid during the year for:
Interest
¥
1,919
¥
2,981
¥
4,570
Income taxes
211,540
164,450
162,247
See accompanying notes to consolidated financial statements.
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1.
Basis of Presentation and Significant Accounting Policies
(a)
Description of Business
Canon Inc. (the "Company") and subsidiaries (collectively "Canon") is one of the world's
leading manufacturers in such fields as office imaging products, computer peripherals,
business information products, cameras, and optical related products. Office imaging products
consist mainly of copying machines and digital multifunction devices. Computer peripherals
consist mainly of laser beam and inkjet printers. Business information products consist
mainly of computer information systems, micrographics and calculators. Cameras consist mainly
of single lens reflex ("SLR") cameras, compact cameras, digital cameras and video camcorders.
Optical related products include steppers and aligners used in semiconductor chip production,
projection aligners used in the production of liquid crystal displays ("LCDs"), broadcasting
lenses and medical equipment. Canon's consolidated net sales for the years ended December 31,
2005, 2004 and 2003 were distributed as follows: office imaging products 31%, 33% and 34%,
computer peripherals 33%, 33% and 34%, business information products 3%, 3% and 4%, cameras
23%, 22% and 20%, and optical and other products 10%, 9% and 8%, respectively.
Sales are made principally under the Canon brand name, almost entirely through sales
subsidiaries. These subsidiaries are responsible for marketing and distribution, and
primarily sell to retail dealers in their geographical area. Approximately 74%, 73% and 73%
of consolidated net sales for the years ended December 31, 2005, 2004 and 2003 were generated
outside Japan, with 30%, 30% and 33% in the Americas, 32%, 31% and 30% in Europe, and 12%, 12%
and 10% in other areas, respectively.
Canon sells laser beam printers on an OEM basis to Hewlett-Packard Company; such sales
constituted approximately 21%, 21% and 20% of consolidated net sales for the years ended
December 31, 2005, 2004 and 2003, respectively.
Canon's manufacturing operations are conducted primarily at 23 plants in Japan and 17 overseas
plants which are located in countries or regions such as the United States, Germany, France, Taiwan, China, Malaysia,
Thailand and Vietnam.
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1.
Basis of Presentation and Significant Accounting Policies (continued)
(b)
Basis of Presentation
The Company and its domestic subsidiaries maintain their books of account in conformity with
financial accounting standards of Japan. Foreign subsidiaries maintain their books of account
in conformity with financial accounting standards of the countries of their domicile.
Certain adjustments and reclassifications have been incorporated in the accompanying
consolidated financial statements to conform with U.S. generally accepted accounting
principles. These adjustments were not recorded in the statutory books of account.
(c)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its majority owned
subsidiaries and those variable interest entities where the Company is the primary beneficiary
under FASB Interpretation No. 46 (revised December 2003) ("FIN 46R"), "Consolidation of
Variable Interest Entities." All significant intercompany balances and transactions have been
eliminated.
(d)
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the period. Significant estimates and assumptions are
reflected in valuation and disclosure of revenue recognition, allowance for doubtful
receivables, valuation of inventories, environmental liabilities, valuation of deferred tax
assets and employee retirement and severance benefit plans. Actual results could differ
materially from those estimates.
(e)
Cash Equivalents
All highly liquid investments acquired with an original maturity of three months or less are
considered to be cash equivalents.
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1.
Basis of Presentation and Significant Accounting Policies (continued)
(f)
Translation of Foreign Currencies
Assets and liabilities of the Company's subsidiaries located outside Japan with functional
currencies other than Japanese yen are translated into Japanese yen at the rates of exchange
in effect at the balance sheet date. Income and expense items are translated at the average
exchange rates prevailing during the year. Gains and losses resulting from translation of
financial statements are excluded from earnings and are reported in other comprehensive income
(loss).
Gains and losses resulting from foreign currency transactions, including foreign exchange
contracts, and translation of assets and liabilities denominated in foreign currencies are
included in other income (deductions). Foreign currency exchange losses, net were Yen 3,710
million, Yen 17,800 million and Yen 20,311 million for the years ended December 31, 2005, 2004
and 2003, respectively.
(g)
Marketable Securities and Investments
Canon classifies investments in debt and marketable equity securities as available-for-sale,
or held-to-maturity securities. Canon does not hold any trading securities which are bought
and held primarily for the purpose of sale in the near term. Available-for-sale securities
are recorded at fair value. Unrealized holding gains and losses, net of the related tax
effect, are reported as a separate component of other comprehensive income (loss) until
realized. Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts.
Available-for-sale and held-to-maturity securities are regularly reviewed for
other-than-temporary declines in carrying value based on criteria that include the length of
time and the extent to which the market value has been less than cost, the financial condition
and near-term prospects of the issuer and Canon's intent and ability to retain the investment
for a period of time sufficient to allow for any anticipated recovery in market value. When
such a decline exists, Canon recognizes an impairment loss to the extent by which the cost
basis of the investment exceeds the fair value of the investment. Fair value is determined
based on quoted market prices, projected discounted cash flows or other valuation techniques
as appropriate.
Realized gains and losses are determined on the average cost method and reflected in earnings.
Other securities are stated at cost and reviewed periodically for impairment.
73
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1.
Basis of Presentation and Significant Accounting Policies (continued)
(h)
Allowance for Doubtful Receivables
Allowance for doubtful trade and finance receivables is maintained for all customers based on
a combination of factors, including aging analysis, macroeconomic conditions, significant
one-time events, and historical experience. An additional reserve for individual accounts is
recorded when Canon becomes aware of a customer's inability to meet its financial obligations,
such as in the case of bankruptcy filings. If circumstances related to customers change,
estimates of the recoverability of receivables would be further adjusted. When all collection
options are exhausted including legal recourse, the accounts or portions thereof are deemed to
be uncollectible and charged against the allowance.
(i)
Inventories
Inventories are stated at the lower of cost or market value. Cost is determined principally
by the average method for domestic inventories and the first-in, first-out method for overseas
inventories.
(j)
Investments in Affiliated Companies
Investments in affiliated companies over which Canon has the ability to exercise significant
influence, but does not hold a controlling financial interest, are accounted for by the equity
method.
(k)
Impairment of Long-Lived Assets
Long-lived assets, such as property, plant and equipment, and acquired intangibles subject to
amortization, are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of the asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the carrying amount
of the asset exceeds its estimated future cash flows, an impairment charge is recognized in
the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Assets to be disposed of by sale are reported at the lower of the carrying amount or fair
value less costs to sell, and are no longer depreciated.
74
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1.
Basis of Presentation and Significant Accounting Policies (continued)
(l)
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is calculated principally by
the declining-balance method, except for certain assets which are depreciated by the
straight-line method over the estimated useful lives of the assets. The depreciation period
ranges from 3 years to 60 years for buildings and 2 years to 20 years for machinery and
equipment.
Assets leased to others under operating leases are stated at cost and depreciated to the
estimated residual value of the assets by the straight-line method over the period ranging
from 2 years to 5 years.
(m)
Goodwill and Other Intangible Assets
Goodwill and intangible assets with indefinite useful lives are not amortized, but are instead
tested for impairment annually in the fourth quarter of each year, or more frequently if
indicators of potential impairment exist. Intangible assets with finite useful lives,
consisting primarily of software and license fees, are amortized using the straight-line
method over the estimated useful lives, which range from 3 years to 5 years for software and 5
years to 10 years for license fees. Certain costs incurred in connection with developing or
obtaining internal use software are capitalized. These costs consist of payments made to
third parties and the salaries of employees working on such software development. Costs
incurred in connection with developing internal use software are capitalized at the
application development stage. In addition, Canon develops or obtains certain software to be
sold where related costs are capitalized after establishment of technological feasibility.
(n)
Environmental Liabilities
Liabilities for environmental remediation and other environmental costs are accrued when
environmental assessments or remedial efforts are probable and the costs can be reasonably
estimated. Such liabilities are adjusted as further information develops or circumstances
change. Costs of future obligations are not discounted to their present values.
(o)
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the enactment date.
75
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1.
Basis of Presentation and Significant Accounting Policies (continued)
(o)
Income Taxes (continued)
Canon records a valuation allowance to reduce the deferred tax assets to the amount that is
more likely than not realizable.
(p)
Issuance of Stock by Subsidiaries and Equity Investees
The change in the Company's proportionate share of a subsidiary's or equity investee's equity
resulting from the issuance of stock by the subsidiary or equity investee is accounted for as
an equity transaction.
(q)
Net Income per Share
Basic net income per share is computed by dividing net income by the weighted-average number
of common shares outstanding during each year. Diluted net income per share includes the
effect from potential issuance of common stock based on the assumption that all convertible
debentures were converted into common stock.
(r)
Revenue Recognition
Canon generates revenue principally through the sale of consumer products, equipment,
supplies, and related services under separate contractual arrangements. Canon recognizes
revenue when persuasive evidence of an arrangement exists, delivery has occurred and title and
risk of loss have been transferred to the customer, the sales price is fixed or determinable,
and collectibility is probable.
For arrangements with multiple elements, which may include any combination of equipment,
installation and maintenance, Canon allocates revenue to each element based on its relative
fair value if such element meets the criteria for treatment as a separate unit of accounting
as prescribed in the Emerging Issues Task Force Issue No. 00-21 ("EITF 00-21"), "Revenue
Arrangements with Multiple Deliverables." Otherwise, revenue is deferred until the
undelivered elements are fulfilled as a single unit of accounting.
Revenue from sales of consumer products including office imaging products, computer
peripherals, business information products and cameras is recognized upon shipment or
delivery, depending upon when title and risk of loss transfer to the customer.
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1.
Basis of Presentation and Significant Accounting Policies (continued)
(r)
Revenue Recognition (continued)
Revenue from sales of optical equipment such as steppers and aligners sold with customer
acceptance provisions related to their functionality is recognized when the equipment is
installed at the customer site and the specific criteria of the equipment functionality are
successfully tested and demonstrated by Canon. Service revenue is derived primarily from
maintenance contracts on equipment sold to customers and is recognized over the term of the
contract.
Most office imaging products are sold with service maintenance contracts for which the
customer typically pays a base service fee plus a variable amount based on usage. Revenue
from these service maintenance contracts is recognized as services are provided.
Revenue from the sale of equipment under sales-type leases is recognized at the inception of
the lease. Income on sales-type leases and direct-financing leases is recognized over the
life of each respective lease using the interest method. Leases not qualifying as sales-type
leases or direct-financing leases are accounted for as operating leases and related revenue is
recognized over the lease term.
Canon records estimated reductions to sales at the time of sale for sales incentive programs
including product discounts, customer promotions and volume-based rebates. Estimated
reductions in sales are based upon historical trends and other known factors at the time of
sale. In addition, Canon provides price protection to certain resellers of its products, and
records reductions to sales for the estimated impact of price protection obligations when
announced.
Estimated product warranty costs are recorded at the time revenue is recognized and are
included in selling, general and administrative expenses. Estimates for accrued product
warranty costs are based on historical experience, and are affected by ongoing product failure
rates, specific product class failures outside of the baseline experience, material usage and
service delivery costs incurred in correcting a product failure.
(s)
Research and Development Costs
Research and development costs are expensed as incurred.
(t)
Advertising Costs
Advertising costs are expensed as incurred. Advertising expenses were Yen 106,250 million,
Yen 111,770 million and Yen 100,278 million for the years ended December 31, 2005, 2004 and
2003, respectively.
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1.
Basis of Presentation and Significant Accounting Policies (continued)
(u)
Shipping and Handling Costs
Shipping and handling costs totaled Yen 50,052 million, Yen 46,953 million and Yen 40,660
million for the years ended December 31, 2005, 2004 and 2003, respectively, and are included
in selling, general and administrative expenses in the consolidated statements of income.
(v)
Derivative Financial Instruments
All derivatives are recognized at fair value and are included in prepaid expenses and other
current assets, or other current liabilities on the consolidated balance sheets. On the date
the derivative contract is entered into, Canon designates the derivative as either a hedge of
the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair
value" hedge), or a hedge of a forecasted transaction or the variability of cash flows to be
received or paid related to a recognized asset or liability ("cash flow" hedge). Canon
formally documents all relationships between hedging instruments and hedged items, as well as
its risk-management objective and strategy for undertaking various hedge transactions. Canon
also formally assesses, both at the hedge's inception and on an ongoing basis, whether the
derivatives that are used in hedging transactions are highly effective in offsetting changes
in fair values or cash flows of hedged items. When it is determined that a derivative is not
highly effective as a hedge or that it has ceased to be a highly effective hedge, Canon
discontinues hedge accounting prospectively.
Changes in the fair value of a derivative that is designated and qualifies as a fair-value
hedge, along with the loss or gain on the hedged asset or liability or unrecognized firm
commitment of the hedged item that is attributable to the hedged risk, are recorded in
earnings. Changes in the fair value of a derivative that is designated and qualifies as a
cash-flow hedge are recorded in other comprehensive income (loss), until earnings are affected
by the variability in cash flows of the hedged item. Gains and losses from hedging
ineffectiveness are included in other income (deductions). Gains and losses excluded from the
assessment of hedge effectiveness (time value component) are included in other income
(deductions).
Canon also uses certain derivative financial instruments which are not designated as hedges.
Canon records these derivative financial instruments on the consolidated balance sheets at
fair value. The changes in fair values are immediately recorded in earnings.
(w)
Guarantees
Canon recognizes, at the inception of a guarantee, a liability for the fair value of the
obligation it has undertaken in issuing guarantees.
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1.
Basis of Presentation and Significant Accounting Policies (continued)
(x)
New Accounting Standards
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs—an amendment of ARB No. 43,
Chapter 4" ("SFAS 151"). SFAS 151 amends the guidance in ARB No. 43, Chapter 4,
"Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). Among other provisions, the
new rule requires that items such as idle facility expense, excessive spoilage, double
freight, and rehandling costs be recognized as current-period charges regardless of whether
they meet the criterion of "so abnormal" as stated in ARB No. 43. Additionally, SFAS 151
requires that the allocation of fixed production overheads to the costs of conversion be based
on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years
beginning after June 15, 2005 and is required to be adopted by Canon in the first quarter
beginning January 1, 2006. Canon is currently evaluating the effect that the adoption of SFAS
151 will have on its consolidated results of operations and financial condition but does not
expect SFAS 151 to have a material impact.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets—an
amendment of APB Opinion No. 29" ("SFAS 153"). SFAS 153 eliminates the exception from fair
value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of
APB Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it with an
exception for exchanges that do not have commercial substance. SFAS 153 specifies that a
nonmonetary exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. SFAS 153 is effective for the
fiscal periods beginning after June 15, 2005 and was adopted by Canon in the third quarter
ended September 30, 2005. The adoption of SFAS 153 did not have a material impact on the
consolidated results of operations and financial condition of Canon.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections—a
replacement of APB Opinion No. 20 and FASB Statement No. 3" ("SFAS 154"). SFAS 154 replaces
APB Opinion No. 20, "Accounting Changes" and SFAS No. 3 "Reporting Accounting Changes in
Interim Financial Statements," and provides guidance on the accounting for and reporting of
accounting changes and error corrections. SFAS 154 establishes retrospective application, or
the latest practicable date, as the required method for reporting a change in accounting
principle and the reporting of a correction of an error. SFAS 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning after December 15, 2005 and
is required to be adopted by Canon in the first quarter beginning January 1, 2006. Canon is
currently evaluating the effect that the adoption of SFAS 154 will have on its consolidated
results of operations and financial condition but does not expect SFAS 154 to have a material
impact.
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1.
Basis of Presentation and Significant Accounting Policies (continued)
(x)
New Accounting Standards (continued)
In June 2005, the FASB issued FSP FAS 143-1, "Accounting for Electronic Equipment Waste
Obligations" ("FSP 143-1"). FSP 143-1 provides guidance on the accounting for certain
obligations associated with the Waste Electrical and Electronic Equipment Directive (the
"Directive"), adopted by the European Union ("EU"). Under the Directive, the waste management
obligation for historical equipment (products put on the market on or prior to August 13,
2005) remains with the commercial user until the customer replaces the equipment. FSP 143-1
is required to be applied to the later of the first reporting period ending after June 8, 2005
or the date of the Directive's adoption into law by the applicable EU member countries. Canon
adopted FSP 143-1 in the third quarter ended September 30, 2005 and has determined that its
effect did not have a material impact on its consolidated results of operations and financial
condition in 2005.
In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments" ("FSP 115-1").
FSP 115-1 provides guidance on determining when investments in certain debt and equity
securities are considered impaired, whether that impairment is other-than-temporary, and on
measuring such impairment loss. FSP 115-1 also includes accounting considerations subsequent
to the recognition of an other-than-temporary impairment and requires certain disclosures
about unrealized losses that have not been recognized as other-than-temporary impairments.
FSP 115-1 is required to be applied to reporting periods beginning after December 15, 2005 and
is required to be adopted by Canon in the first quarter beginning January 1, 2006. Canon is
currently evaluating the effect that the adoption of FSP 115-1 will have on its consolidated
results of operations and financial condition but does not expect FSP 115-1 to have a material
impact.
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1.
Basis of Presentation and Significant Accounting Policies (continued)
(y)
Reclassification
Certain reclassifications have been made to the prior years' consolidated financial statements
to conform with the presentation used for the year ended December 31, 2005.
2.
Foreign Operations
Amounts included in the consolidated financial statements relating to subsidiaries operating in
foreign countries are summarized as follows:
2005
2004
2003
(Millions of yen)
Total assets
¥
1,751,011
¥
1,500,197
¥
1,339,854
Net assets
767,711
632,657
564,041
Net sales
2,774,443
2,548,700
2,341,221
Net income
81,916
70,227
74,274
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3.
Marketable Securities and Investments
The cost, gross unrealized holding gains, gross unrealized holding losses and fair value for
available-for-sale securities and held-to-maturity securities by major security type at December
31, 2005 and 2004 were as follows:
December 31, 2005
Gross
Gross
unrealized
unrealized
holding
holding
Fair
Cost
gains
losses
value
(Millions of yen)
Current:
Available-for-sale:
Bank debt securities
¥
71
¥
—
¥
—
¥
71
Equity securities
101
—
—
101
¥
172
¥
—
¥
—
¥
172
Noncurrent:
Available-for-sale:
Government bonds
¥
525
¥
7
¥
—
¥
532
Corporate debt securities
85
3
—
88
Fund trusts
4,553
1,446
—
5,999
Equity securities
11,373
15,086
10
26,449
16,536
16,542
10
33,068
Held-to-maturity:
Corporate debt securities
20,961
—
—
20,961
¥
37,497
¥
16,542
¥
10
¥
54,029
82
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3.
Marketable Securities and Investments (continued)
December 31, 2004
Gross
Gross
unrealized
unrealized
holding
holding
Fair
Cost
gains
losses
value
(Millions of yen)
Current:
Available-for-sale:
Corporate debt securities
¥
138
¥
—
¥
—
¥
138
Bank debt securities
71
—
—
71
Fund trusts
92
40
—
132
Equity securities
1,117
100
4
1,213
¥
1,418
¥
140
¥
4
¥
1,554
Noncurrent:
Available-for-sale:
Government bonds
¥
536
¥
26
¥
25
¥
537
Corporate debt securities
56
19
—
75
Fund trusts
2,064
574
12
2,626
Equity securities
9,185
16,628
76
25,737
11,841
17,247
113
28,975
Held-to-maturity:
Corporate debt securities
21,460
—
—
21,460
¥
33,301
¥
17,247
¥
113
¥
50,435
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3.
Marketable Securities and Investments (continued)
Maturities of debt securities and fund trusts classified as available-for-sale and held-to-maturity
were as follows at December 31, 2005:
Available-for-sale securities
Cost
Fair value
(Millions of yen)
Due within one year
¥
71
¥
71
Due after one year through
five years
1,811
3,243
Due after five years
3,352
3,376
¥
5,234
¥
6,690
Held-to-maturity securities
Cost
Fair value
(Millions of yen)
Due after one year through five years
¥20,961
¥20,961
The gross realized gains for the year ended December 31, 2005 and 2004 were Yen 11,049 million and
Yen 3,867 million, respectively. The gross realized gains for the year ended December 31, 2003 and
the gross realized losses for the years ended December 31, 2005, 2004 and 2003 were not
significant.
At December 31, 2005, substantially all of the available-for-sale and held-to-maturity securities
with unrealized losses had been in a continuous unrealized loss position for less than 12 months.
Aggregate cost of non-marketable equity securities accounted for under the cost method totaled Yen
16,714 million and Yen 14,635 million at December 31, 2005 and 2004, respectively. Investments
with an aggregate cost of Yen 16,702 million were not evaluated for impairment because (a) Canon
did not estimate the fair value of those investments as it was not practicable to estimate the fair
value of the investments and (b) Canon did not identify any events or changes in circumstances that
might have had significant adverse effects on the fair value of those investments.
Investments in affiliated companies accounted for by the equity method amounted to Yen 31,418
million and Yen 26,546 million at December 31, 2005 and 2004, respectively. Canon's share of the
net earnings (losses) in affiliated companies accounted for by the equity method, included in other
income (deductions), are earnings of Yen 1,646 million and Yen 1,921 million for the years ended
December 31, 2005 and 2004 and losses of Yen 1,124 million for the year ended December 31, 2003,
respectively.
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4.
Trade Receivables
Trade receivables are summarized as follows:
December 31
2005
2004
(Millions of yen)
Notes
¥
27,328
¥
30,261
Accounts
673,827
584,186
701,155
614,447
Less allowance for doubtful
receivables
(11,728
)
(11,657
)
¥
689,427
¥
602,790
5.
Inventories
Inventories comprised the following:
December 31
2005
2004
(Millions of yen)
Finished goods
¥
359,934
¥
352,656
Work in process
132,520
121,613
Raw materials
17,741
14,859
¥
510,195
¥
489,128
6.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and are summarized
as follows:
December 31
2005
2004
(Millions of yen)
Land
¥
199,595
¥
182,330
Buildings
997,351
824,969
Machinery and equipment
1,164,480
1,053,121
Construction in progress
59,558
74,599
2,420,984
2,135,019
Less accumulated depreciation
(1,272,163
)
(1,173,305
)
¥
1,148,821
¥
961,714
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7.
Finance Receivables and Operating Leases
Finance receivables represent financing leases which consist of sales-type leases and
direct-financing leases resulting from the marketing of Canon's and complementary third-party
products. These receivables typically have terms ranging from 1 to 6 years. The components of the
finance receivables, which are included in prepaid expenses and other current assets, and other
assets in the accompanying consolidated balance sheets, are as follows:
December 31
2005
2004
(Millions of yen)
Total minimum lease payments receivable
¥
204,774
¥
180,707
Unguaranteed residual values
13,849
10,816
Executory costs
(2,785
)
(2,533
)
Unearned income
(23,632
)
(20,880
)
192,206
168,110
Less allowance for doubtful receivables
(8,372
)
(6,068
)
183,834
162,042
Less amount due within one year
(69,211
)
(61,187
)
¥
114,623
¥
100,855
The cost of equipment leased to customers under operating leases at December 31, 2005 and 2004 was
Yen 60,839 million and Yen 67,364 million, respectively. Accumulated depreciation on equipment
under operating leases at December 31, 2005 and 2004 was Yen 45,285 million and Yen 52,493 million,
respectively.
The following is a schedule by year of the future minimum lease payments to be received under
financing leases and non-cancelable operating leases at December 31, 2005.
Financing
Operating
leases
leases
(Millions of yen)
Year ending December 31:
2006
¥
81,967
¥
3,691
2007
58,998
1,846
2008
38,347
1,131
2009
18,314
533
2010
6,483
40
Thereafter
665
9
¥
204,774
¥
7,250
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8.
Acquisitions
In 2005, the Company acquired two companies for a total cost of Yen 20,205 million, which was paid
in cash. Those companies are engaged in the development, manufacturing and sales of semiconductor
manufacturing equipment, factory automation equipment and vacuum equipment for production of
electronic parts, including semiconductors, flat panel displays, magnetic heads and hard disc
drives. In connection with those transactions, the Company recognized goodwill of Yen 4,885
million and intangible assets of Yen 16,382 million, which were classified as other assets in the
accompanying consolidated financial statements. Intangible assets consist primarily of developed
technology, and are subject to a weighted average amortization period of approximately 9 years.
In 2004, the Company acquired all of the outstanding common shares of a precision plastic mold
manufacturer, in an exchange offering for 577,920 shares of the Company's common stock. The
aggregate value of the shares exchanged was approximately Yen 2,805 million. In connection with
this transaction, the Company recognized goodwill of Yen 1,585 million, which was classified as
other assets in the accompanying consolidated financial statements.
Canon has included the results of operations of these transactions prospectively from the
respective dates of transactions. Canon has not presented the pro forma results of operations of
the acquired businesses because the results are not material to its consolidated results of
operations on either an individual or an aggregate basis.
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9.
Goodwill and Other Intangible Assets
Intangible assets acquired during the year ended December 31, 2005 totaled Yen 42,393 million,
which are subject to amortization and, in addition to those recorded from acquired businesses,
primarily consist of internal use software of Yen 23,383 million and license fees of Yen 1,116
million. The weighted average amortization period for internal use software and license fees is
approximately 4 years and 8 years, respectively.
The components of acquired intangible assets subject to amortization included in other assets at
December 31, 2005 and 2004 were as follows:
December 31, 2005
December 31, 2004
Gross
Gross
carrying
Accumulated
carrying
Accumulated
amount
amortization
amount
amortization
(Millions of yen)
Software
¥
121,729
¥
70,535
¥
121,546
¥
79,517
License fees
20,567
11,329
24,603
14,183
Other
23,291
4,997
6,976
3,585
¥
165,587
¥
86,861
¥
153,125
¥
97,285
Aggregate amortization expense for the years ended December 31, 2005, 2004 and 2003 was Yen 20,214
million, Yen 18,295 million and Yen 12,438 million, respectively. Estimated amortization expense
for the next five years ending December 31 is Yen 23,117 million in 2006, Yen 17,286 million in
2007, Yen 12,911 million in 2008, Yen 8,386 million in 2009, and Yen 4,366 million in 2010.
Intangible assets not subject to amortization other than goodwill at December 31, 2005 and 2004
were not significant.
88
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9.
Goodwill and Other Intangible Assets (continued)
The changes in the carrying amount of goodwill for the years ended December 31, 2005 and 2004 were
as follows:
Year ended December 31
2005
2004
(Millions of yen)
Balance at beginning of year
¥
24,233
¥
22,067
Goodwill acquired during the year
15,391
3,156
Impairment losses
—
(42
)
Recognition of acquired company's tax
benefits
—
(1,298
)
Translation adjustments
537
350
Balance at end of year
¥
40,161
¥
24,233
During the year ended December 31, 2004, Canon recognized Yen 1,298 million of deferred tax
benefits relating to preexisting net operating tax losses of a company acquired in 2003. In
connection therewith, Canon reduced the related goodwill by the same amount.
89
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10.
Short-Term Loans and Long-Term Debt
Short-term loans consisting of bank borrowings at December 31, 2005 were Yen 67 million. The
weighted average interest rate on short-term loans outstanding at December 31, 2005 was 2.14%.
Long-term debt consisted of the following:
December 31
2005
2004
(Millions of yen)
Loans, principally from banks,
maturing in installments through 2018;
bearing weighted average interest of
1.40% and 3.05% at December 31, 2005
and 2004, respectively, partially
secured by mortgage of property, plant
and equipment
¥
2,641
¥
2,949
1.88% Japanese yen notes, due 2005
—
5,000
1.71% Japanese yen notes, due 2005
—
200
2.95% Japanese yen notes, due 2007
10,000
10,000
2.27% Japanese yen notes, due 2008
10,000
10,000
1.20% Japanese yen convertible
debentures, due 2005
—
309
1.30% Japanese yen convertible
debentures, due 2008
649
1,487
Capital lease obligations
8,784
8,585
32,074
38,530
Less amount due within one year
(4,992
)
(9,879
)
¥
27,082
¥
28,651
The aggregate annual maturities of long-term debt outstanding at December 31, 2005 were as follows:
(Millions of yen)
Year ending December 31:
2006
¥
4,992
2007
13,318
2008
12,351
2009
895
2010
417
Thereafter
101
¥
32,074
90
Table of Contents
Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10.
Short-Term Loans and Long-Term Debt (continued)
Certain property, plant and equipment with a net book carrying value of Yen 7,423 million at
December 31, 2005 were mortgaged to secure loans from banks.
Canon entered into an agreement whereby certain assets were deposited into an irrevocable trust to
meet the debt service requirements of the: 2.95% Japanese yen notes; and 2.27% Japanese yen notes
in the aggregate amount of Yen 20,000 million. The assets contributed by Canon were debt
securities with carrying amounts of Yen 20,961 million, at December 31, 2005. Cash flows from such
investments will be used solely to satisfy the principal and interest obligations for the debts.
Accordingly, the debt securities are included in the consolidated balance sheet under the caption
of investments.
Both short-term and long-term bank loans are made under general agreements which provide that
security and guarantees for present and future indebtedness will be given upon request of the bank,
and that the bank shall have the right to offset cash deposits against obligations that have become
due or, in the event of default, against all obligations due to the bank. Long-term agreements
with lenders other than banks also generally provide that Canon must provide additional security
upon request of the lender.
The 1.30% Japanese yen convertible debentures due 2008 are convertible into approximately 434,000
shares of common stock at a conversion price of Yen 1,497.00 per share at December 31, 2005. The
debentures are redeemable at the option of the Company between January 1, 2006 and December 31,
2007 at declining premiums ranging from 2% to 1%, and at par thereafter.
11.
Trade Payables
Trade payables are summarized as follows:
December 31
2005
2004
(Millions of yen)
Notes
¥
17,567
¥
51,081
Accounts
487,559
414,315
¥
505,126
¥
465,396
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12.
Employee Retirement and Severance Benefits
The Company and certain of its subsidiaries have contributory and noncontributory defined benefit
plans covering substantially all employees after one year of service. Other subsidiaries sponsor
unfunded retirement and severance plans. Benefits payable under the plans are based on employee
earnings and years of service.
The contributory plans in Japan mainly represent the Employees' Pension Fund plans ("EPFs"),
composed of the substitutional portions based on the pay-related part of the old age pension
benefits prescribed by the Welfare Pension Insurance Law and the corporate portions based on
contributory defined benefit pension arrangements established at the discretion of the Company and
its subsidiaries. The substitutional portions of the EPFs represent welfare pension plans carried
on behalf of the Japanese government. These contributory and noncontributory plans are funded in
conformity with the funding requirements of applicable Japanese governmental regulations.
In January 2003, the Emerging Issues Task Force reached a final consensus on Issue No. 03-2 ("EITF
03-2"), "Accounting for the Transfer to the Japanese Government of the Substitutional Portion of
Employee Pension Fund Liabilities," which addresses accounting for a transfer to the Japanese
government of a substitutional portion of an EPF. During the year ended December 31, 2003, the
Company and certain of its domestic subsidiaries received approval from the government for an
exemption from the obligation to pay benefits for future employee service related to the
substitutional portion. During the year ended December 31, 2004, the Company and certain of its
domestic subsidiaries received approval to separate the remaining substitutional portion related to
past service by their employees. During the year ended December 31, 2004, the Company and certain
of its domestic subsidiaries also completed the transfer of the substitutional portion of the
benefit obligation and the related government-specified portion of the plan assets which were
computed by the government, and were relieved of all related obligations. Canon has accounted for
the entire process at the completion of the transfer to the government of the substitutional
portion of the benefit obligation and the related plan assets as a single settlement transaction in
accordance with EITF 03-2. As a result, Canon recognized a settlement loss of Yen 69,651 million
for the year ended December 31, 2004, which is determined based on the proportion of the projected
benefit obligation settled to the total projected benefit obligation immediately prior to the
separation. Canon also recognized a subsidy from the government of Yen 86,792 million, which is
calculated as the difference between the obligation settled and the assets transferred to the
government. The net gain of Yen 17,141 million is included in selling, general and administrative
expenses for the year ended December 31, 2004.
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12.
Employee Retirement and Severance Benefits (continued)
Canon uses a measurement date of October 1 for the majority of its plans.
Net periodic benefit cost for Canon's employee retirement and severance defined benefit plans for
the years ended December 31, 2005, 2004 and 2003 consisted of the following components:
Year ended December 31
2005
2004
2003
(Millions of yen)
Service cost — benefits earned during
the year
¥
25,801
¥
26,571
¥
29,024
Interest cost on projected benefit
obligation
16,172
19,108
20,806
Expected return on plan assets
(19,651
)
(17,054
)
(13,959
)
Amortization of unrecognized net
obligation at transition
345
344
344
Amortization of prior service cost
(8,007
)
(6,814
)
(5,515
)
Recognized actuarial loss
10,542
12,505
15,807
Settlement loss resulting from plan
termination
—
2,784
—
Settlement loss resulting from
transfer of substitutional portion of
EPFs to the Japanese government
—
69,651
—
¥
25,202
¥
107,095
¥
46,507
93
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12.
Employee Retirement and Severance Benefits (continued)
Reconciliations of beginning and ending balances of the benefit obligations and the fair value of
the plan assets are as follows:
December 31
2005
2004
(Millions of yen)
Change in benefit obligations:
Benefit obligations at beginning of year
¥
582,212
¥
752,390
Service cost
25,801
26,571
Interest cost
16,172
19,108
Plan participants' contributions
1,161
1,142
Amendments
(6,212
)
(2,781
)
Actuarial gain
3,340
(5,728
)
Benefits paid
(12,239
)
(14,143
)
Settlement on plan termination
—
(6,482
)
Transfer of substitutional portion of EPFs to
the Japanese government
—
(191,784
)
Acquisition
10,106
84
Foreign currency exchange rate changes
167
3,957
Other
(15
)
(122
)
Benefit obligations at end of year
620,493
582,212
Change in plan assets:
Fair value of plan assets at beginning of year
418,798
472,228
Actual return on plan assets
93,844
32,744
Employer contributions
40,059
31,018
Plan participants' contributions
1,161
1,142
Benefits paid
(12,239
)
(14,143
)
Settlement on plan termination
—
(2,274
)
Transfer of substitutional portion of EPFs to
the Japanese government
—
(104,992
)
Acquisition
3,486
—
Foreign currency exchange rate changes
409
3,075
Fair value of plan assets at end of year
545,518
418,798
Funded status
(74,975
)
(163,414
)
Unrecognized actuarial loss
110,424
191,376
Unrecognized prior service cost
(101,552
)
(102,427
)
Unrecognized net transition obligation being
recognized over 22 years
3,955
4,300
Net amount recognized
¥
(62,148
)
¥
(70,165
)
Amounts recognized in the consolidated balance
sheets consist of:
Prepaid pension cost
¥
3,089
¥
3,142
Accrued pension and severance cost
(80,430
)
(132,522
)
Intangible assets
—
57
Accumulated other comprehensive income (loss)
15,193
59,158
Net amount recognized
¥
(62,148
)
¥
(70,165
)
94
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12.
Employee Retirement and Severance Benefits (continued)
The accumulated benefit obligation for all defined benefit plans was as follows:
December 31
2005
2004
(Millions of yen)
Accumulated benefit obligation
¥
578,627
¥
540,615
The projected benefit obligations and the fair value of plan assets for the pension plans with
projected benefit obligations in excess of plan assets, and the accumulated benefit obligations and
the fair value of plan assets for the pension plans with accumulated benefit obligations in excess
of plan assets are as follows:
December 31
2005
2004
(Millions of yen)
Plans with projected benefit
obligations in excess of plan assets:
Projected benefit obligations
¥
587,162
¥
577,022
Fair value of plan assets
510,287
411,918
Plans with accumulated benefit
obligations in excess of plan assets:
Accumulated benefit obligations
545,375
512,216
Fair value of plan assets
506,634
386,921
Assumptions
Weighted-average assumptions used to determine benefit obligations are as follows:
December 31
2005
2004
Discount rate
2.7%
2.7%
Assumed rate of increase in future compensation levels
3.3%
3.0%
95
Table of Contents
Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12.
Employee Retirement and Severance Benefits (continued)
Weighted-average assumptions used to determine net periodic benefit cost are as follows:
Year ended December 31
2005
2004
2003
Discount rate
2.7%
2.7%
2.7%
Assumed rate of increase in future
compensation levels
3.0%
2.0%
2.0%
Expected long-term rate of return on
plan assets
4.6%
3.6%
3.6%
Canon determines the expected long-term rate of return based on the expected long-term return of
the various asset categories in which it invests. Canon considers the current expectations for
future returns and the actual historical returns of each plan asset category.
Plan assets
The weighted-average asset allocations of Canon's benefit plans at December 31, 2005 and 2004 and
target asset allocation by asset category are as follows:
December 31
Target
2005
2004
allocation
Asset category:
Equity securities
50.8%
43.0%
46.3%
Debt securities
34.6%
37.2%
35.6%
Cash
0.7%
1.7%
0.3%
Life insurance company general accounts
13.5%
14.5%
17.1%
Other
0.4%
3.6%
0.7%
100.0%
100.0%
100.0%
Canon's investment policies are designed to ensure adequate plan assets are available to provide
future payments of pension benefits to eligible participants. Taking into account the expected
long-term rate of return on plan assets, Canon formulates a "model" portfolio comprised of the
optimal combination of equity securities and debt securities. Plan assets are invested in
individual equity and debt securities using the guidelines of the "model" portfolio in order to
produce a total return that will match the expected return on a mid-term to long-term basis. Canon
evaluates the gap between expected return and actual return of invested plan assets on an annual
basis to determine if such differences necessitate a revision in the formulation of the "model"
portfolio. Canon revises the "model" portfolio when and to the extent considered necessary to
achieve the expected long-term rate of return on plan assets.
The plan's equity securities include common stock of the Company and certain of its subsidiaries in
the amounts of Yen 1,311 million and Yen 946 million at December 31, 2005 and 2004, respectively.
96
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12.
Employee Retirement and Severance Benefits (continued)
Contributions
Canon expects to contribute Yen 45,352 million to its defined benefit plans for the year ending
December 31, 2006.
Estimated future benefit payments
The following benefit payments, which reflect expected future service, as appropriate, are expected
to be paid:
(Millions of yen)
Years ending December 31:
2006
¥
9,798
2007
10,658
2008
12,237
2009
13,328
2010
14,629
2011 – 2015
93,055
13.
Income Taxes
Domestic and foreign components of income before income taxes and minority interests, and the
current and deferred income tax expense (benefit) attributable to such income are summarized as
follows:
Year ended December 31, 2005
Japanese
Foreign
Total
(Millions of yen)
Income before income
taxes and minority
interests
¥
492,709
¥
119,295
¥
612,004
Income taxes:
Current
¥
172,595
¥
40,956
¥
213,551
Deferred
3,441
(4,207
)
(766
)
¥
176,036
¥
36,749
¥
212,785
97
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13.
Income Taxes (continued)
Year ended December 31, 2004
Japanese
Foreign
Total
(Millions of yen)
Income before income
taxes and minority
interests
¥
447,864
¥
104,252
¥
552,116
Income taxes:
Current
¥
162,679
¥
22,275
¥
184,954
Deferred
(1,065
)
10,125
9,060
¥
161,614
¥
32,400
¥
194,014
Year ended December 31, 2003
Japanese
Foreign
Total
(Millions of yen)
Income before income
taxes and minority
interests
¥
337,093
¥
111,077
¥
448,170
Income taxes:
Current
¥
132,204
¥
33,484
¥
165,688
Deferred
(5,828
)
2,793
(3,035
)
¥
126,376
¥
36,277
¥
162,653
The Company and its domestic subsidiaries are subject to a number of income taxes, which, in the
aggregate, represent a statutory income tax rate of approximately 40% for the year ended December
31, 2005 and 42% for the years ended December 31, 2004 and 2003.
98
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13.
Income Taxes (continued)
Amendments to the Japanese tax regulations were enacted on March 24, 2003. As a result of these
amendments, the statutory income tax rate was reduced from approximately 42% to 40% effective from
the year beginning January 1, 2005. Consequently, the statutory tax rate utilized for deferred tax
assets and liabilities expected to be settled or realized subsequent to January 1, 2005 is
approximately 40%. The adjustments of deferred tax assets and liabilities for this change in the
tax rate amounted to Yen 3,613 million and have been reflected in income taxes on the consolidated
statements of income for the year ended December 31, 2003.
A reconciliation of the Japanese statutory income tax rate and the effective income tax rate as a
percentage of income before income taxes and minority interests is as follows:
Year ended December 31
2005
2004
2003
Japanese statutory income tax rate
40.0
%
42.0
%
42.0
%
Increase (reduction) in income taxes
resulting from:
Expenses not deductible for tax purposes
0.3
0.4
0.2
Tax benefits not recognized on
operating losses of subsidiaries
—
0.1
0.1
Income of foreign subsidiaries taxed at
lower than Japanese statutory tax rate
(1.9
)
(2.1
)
(2.5
)
Tax credit for research and development
expenses
(3.9
)
(4.0
)
(4.0
)
Effect of enacted changes in tax laws
and rates
—
—
0.8
Other
0.3
(1.3
)
(0.3
)
Effective income tax rate
34.8
%
35.1
%
36.3
%
Net deferred income tax assets and liabilities are reflected on the accompanying consolidated
balance sheets under the following captions:
December 31
2005
2004
(Millions of yen)
Prepaid expenses and other current assets
¥
52,116
¥
47,679
Other assets
61,325
84,686
Other current liabilities
(3,500
)
(2,873
)
Other noncurrent liabilities
(36,329
)
(30,049
)
¥
73,612
¥
99,443
99
Table of Contents
Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13.
Income Taxes (continued)
The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax
liabilities at December 31, 2005 and 2004 are presented below:
December 31
2005
2004
(Millions of yen)
Deferred tax assets:
Inventories
¥
13,459
¥
11,364
Accrued business tax
8,599
10,149
Accrued pension and severance cost
28,665
34,680
Minimum pension liability adjustments
5,592
22,778
Research and development — costs
capitalized for tax purposes
23,629
22,499
Property, plant and equipment
21,839
17,406
Accrued expenses
20,132
17,976
Net operating losses carried forward
1,388
1,799
Other
24,362
24,258
Total gross deferred tax assets
147,665
162,909
Less valuation allowance
(3,345
)
(3,495
)
Net deferred tax assets
144,320
159,414
Deferred tax liabilities:
Undistributed earnings of foreign
subsidiaries
(6,806
)
(5,638
)
Net unrealized gains on securities
(6,480
)
(6,833
)
Tax deductible reserve
(14,307
)
(11,975
)
Financing lease revenue
(35,395
)
(30,196
)
Other
(7,720
)
(5,329
)
Total gross deferred tax liabilities
(70,708
)
(59,971
)
Net deferred tax assets
¥
73,612
¥
99,443
The net changes in the total valuation allowance for the years ended December 31, 2005, 2004 and
2003 were decreases of Yen 150 million, Yen 4,906 million and Yen 1,282 million, respectively.
Based upon the level of historical taxable income and projections for future taxable income over
the periods which the net deductible temporary differences are expected to reverse, management
believes it is more likely than not that Canon will realize the benefits of these deferred tax
assets, net of the existing valuation allowance at December 31, 2005.
100
Table of Contents
Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13.
Income Taxes (continued)
At December 31, 2005, Canon had net operating losses which can be carried forward for income tax
purposes of Yen 4,697 million to reduce future taxable income. Periods available to reduce future
taxable income vary in each tax jurisdiction and generally range from one year to ten years as
follows:
(Millions of yen)
Within one year
¥
1,943
After one year through five years
2,012
After five years through ten years
94
Indefinite period
648
Total
¥
4,697
Income taxes have not been accrued on undistributed earnings of domestic subsidiaries as the tax
law provides a means by which the dividends from a domestic subsidiary can be received tax free.
Canon has not recognized deferred tax liabilities of Yen 29,728 million for a portion of
undistributed earnings of foreign subsidiaries that arose for the year ended December 31, 2005 and
prior years because Canon currently does not expect to have such amounts distributed or paid as
dividends to the Company in the foreseeable future. Deferred tax liabilities will be recognized
when Canon expects that it will realize those undistributed earnings in a taxable manner, such as
through receipt of dividends or sale of the investments. At December 31, 2005, such undistributed
earnings of these subsidiaries were Yen 531,499 million.
14.
Common Stock
For the years ended December 31, 2005, 2004 and 2003, the Company issued 765,528 shares, 6,638,606
shares and 2,202,401 shares of common stock, respectively, in connection with the conversion of
convertible debt. In accordance with the Japanese Commercial Code, conversion into common stock of
convertible debt is accounted for by crediting one-half or more of the conversion price to the
common stock account and the remainder to the additional paid-in capital account.
101
Table of Contents
Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15.
Legal Reserve and Retained Earnings
The Japanese Commercial Code provides that an amount equal to at least 10% of cash dividends and
other distributions from retained earnings paid by the Company and its Japanese subsidiaries be
appropriated as a legal reserve. No further appropriations are required when the total amount of
the additional paid-in capital and the legal reserve equals 25% of their respective stated capital.
The Japanese Commercial Code also provides that to the extent that the sum of the additional
paid-in capital and the legal reserve exceeds 25% of the stated capital, the amount of the excess
(if any) is available for appropriations by the resolution of the shareholders. Certain foreign
subsidiaries are also required to appropriate their earnings to legal reserves under the laws of
the respective countries.
Cash dividends and appropriations to the legal reserve charged to retained earnings for the years
ended December 31, 2005, 2004 and 2003 represent dividends paid out during those years and the
related appropriations to the legal reserve. Retained earnings at December 31, 2005 do not reflect
current year-end dividends in the amount of Yen 59,913 million which will be payable in March 2006
upon approval by the stockholders.
The amount available for dividends under the Japanese Commercial Code is based on the amount
recorded in the Company's nonconsolidated books of account in accordance with financial accounting
standards of Japan. Such amount was Yen 1,366,355 million at December 31, 2005.
Retained earnings at December 31, 2005 included Canon's equity in undistributed earnings of
affiliated companies accounted for by the equity method in the amount of Yen 8,714 million.
102
Table of Contents
Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16.
Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) are as follows:
Year ended December 31
2005
2004
2003
(Millions of yen)
Foreign currency translation
adjustments:
Balance at beginning of year
¥
(79,751
)
¥
(83,801
)
¥
(68,524
)
Adjustments for the year
53,979
4,050
(15,277
)
Balance at end of year
(25,772
)
(79,751
)
(83,801
)
Net unrealized gains and losses on
securities:
Balance at beginning of year
7,470
6,784
(1,168
)
Adjustments for the year
(1,397
)
686
7,952
Balance at end of year
6,073
7,470
6,784
Net gains and losses on derivative
instruments:
Balance at beginning of year
(693
)
(297
)
(334
)
Adjustments for the year
(481
)
(396
)
37
Balance at end of year
(1,174
)
(693
)
(297
)
Minimum pension liability adjustments:
Balance at beginning of year
(28,338
)
(65,961
)
(96,441
)
Adjustments for the year
20,999
37,623
30,480
Balance at end of year
(7,339
)
(28,338
)
(65,961
)
Total accumulated other comprehensive
income (loss):
Balance at beginning of year
(101,312
)
(143,275
)
(166,467
)
Adjustments for the year
73,100
41,963
23,192
Balance at end of year
¥
(28,212
)
¥
(101,312
)
¥
(143,275
)
103
Table of Contents
Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16. Other Comprehensive Income (Loss) (continued)
Tax effects allocated to each component of other comprehensive income (loss) and reclassification
adjustments are as follows:
Year ended December 31
Before-tax
Tax (expense)
Net-of-tax
amount
or benefit
amount
(Millions of yen)
2005:
Foreign currency translation adjustments
¥
55,345
¥
(1,366
)
¥
53,979
Net unrealized gains and losses on securities:
Amount arising during the year
9,005
(3,892
)
5,113
Reclassification adjustments for gains and
losses realized in net income
(10,793
)
4,283
(6,510
)
Net change during the year
(1,788
)
391
(1,397
)
Net gains and losses on derivative instruments:
Amount arising during the year
(9,137
)
3,658
(5,479
)
Reclassification adjustments for gains
and losses realized in net income
8,333
(3,335
)
4,998
Net change during the year
(804
)
323
(481
)
Minimum pension liability adjustments
40,364
(19,365
)
20,999
Other comprehensive income (loss)
¥
93,117
¥
(20,017
)
¥
73,100
2004:
Foreign currency translation adjustments
¥
4,400
¥
(350
)
¥
4,050
Net unrealized gains and losses on securities:
Amount arising during the year
5,022
(2,202
)
2,820
Reclassification adjustments for gains
and losses realized in net income
(3,698
)
1,564
(2,134
)
Net change during the year
1,324
(638
)
686
Net gains and losses on derivative
instruments:
Amount arising during the year
(1,673
)
708
(965
)
Reclassification adjustments for gains
and losses realized in net income
929
(360
)
569
Net change during the year
(744
)
348
(396
)
Minimum pension liability adjustments
78,179
(40,556
)
37,623
Other comprehensive income (loss)
¥
83,159
¥
(41,196
)
¥
41,963
104
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16.
Other Comprehensive Income (Loss) (continued)
Year ended December 31
Before-tax
Tax (expense)
Net-of-tax
amount
or benefit
amount
(Millions of yen)
2003:
Foreign currency translation adjustments:
Amount arising during the year
¥
(19,115
)
¥
3,469
¥
(15,646
)
Reclassification adjustments for gains and
losses realized in net income
369
—
369
Net change during the year
(18,746
)
3,469
(15,277
)
Net unrealized gains and losses on securities:
Amount arising during the year
12,129
(4,477
)
7,652
Reclassification adjustments for gains and
losses realized in net income
515
(215
)
300
Net change during the year
12,644
(4,692
)
7,952
Net gains and losses on derivative
instruments:
Amount arising during the year
(726
)
305
(421
)
Reclassification adjustments for gains
and losses realized in net income
790
(332
)
458
Net change during the year
64
(27
)
37
Minimum pension liability adjustments
70,218
(39,738
)
30,480
Other comprehensive income (loss)
¥
64,180
¥
(40,988
)
¥
23,192
105
Table of Contents
Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17.
Net Income per Share
A reconciliation of the numerators and denominators of basic and diluted net income per share
computations is as follows:
Year ended December 31
2005
2004
2003
(Millions of yen)
Net income
¥
384,096
¥
343,344
¥
275,730
Effect of dilutive securities:
1.20% Japanese yen
convertible debentures, due
2005
5
24
36
1.30% Japanese yen
convertible debentures, due
2008
18
72
86
Diluted net income
¥
384,119
¥
343,440
¥
275,852
(Number of shares)
Average common shares outstanding
887,173,810
885,365,124
878,648,844
Effect of dilutive securities:
1.20% Japanese yen convertible
debentures, due 2005
123,837
462,823
2,664,354
1.30% Japanese yen convertible
debentures, due 2008
745,954
2,125,278
6,382,560
Diluted common shares outstanding
888,043,601
887,953,225
887,695,758
(Yen)
Net income per share:
Basic
¥
432.94
¥
387.80
¥
313.81
Diluted
432.55
386.78
310.75
106
Table of Contents
Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
18.
Derivatives and Hedging Activities
Risk management policy
Canon operates internationally, exposing it to the risk of changes in foreign currency exchange
rates and interest rates. Derivative financial instruments are comprised principally of foreign
exchange contracts and interest rate swaps utilized by the Company and certain of its subsidiaries
to reduce these risks. Canon assesses foreign currency exchange rate risk and interest rate risk
by continually monitoring changes in these exposures and by evaluating hedging opportunities.
Canon does not hold or issue derivative financial instruments for trading purposes. Canon is also
exposed to credit-related losses in the event of non-performance by counterparties to derivative
financial instruments, but it is not expected that any counterparties will fail to meet their
obligations, because most of the counterparties are internationally recognized financial
institutions and contracts are diversified across a number of major financial institutions.
Foreign currency exchange rate risk management
Canon's international operations expose Canon to the risk of changes in foreign currency exchange
rates. Canon uses foreign exchange contracts to manage certain foreign currency exchange exposures
principally from the exchange of U.S. dollar and euro into Japanese yen. These contracts are
primarily used to hedge the foreign currency exposure of forecasted intercompany sales and
intercompany trade receivables which are denominated in foreign currencies. In accordance with
Canon's policy, a specific portion of foreign currency exposure resulting from forecasted
intercompany sales are hedged using foreign exchange contracts which principally mature within
three months.
Interest rate risk management
Canon's exposure to the risk of changes in interest rates relates primarily to its debt
obligations. The variable-rate debt obligations expose Canon to variability in their cash flows
due to change in interest rates. To manage the variability in cash flows caused by interest rate
changes, Canon enters into interest rate swaps when it is determined to be appropriate based on
market conditions. The interest rate swaps change variable-rate debt obligations to fixed-rate
debt obligations by primarily entering into pay-fixed, receive-variable interest rate swaps.
Fair value hedge
Derivative financial instruments designated as fair value hedges principally relate to interest
rate swaps associated with fixed rate debt obligations. Changes in fair values of the hedged debt
obligations and derivative financial instruments designated as fair value hedges of these debt
obligations are recognized in other income (deductions). There is no hedging ineffectiveness or
net gains or losses excluded from the assessment of hedge effectiveness for the years ended
December 31, 2004 and 2003 as the critical terms of the interest rate swaps match the terms of the
hedged debt obligations.
107
Table of Contents
Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
18.
Derivatives and Hedging Activities (continued)
Cash flow hedge
Changes in the fair value of derivative financial instruments designated as cash flow hedges,
including foreign exchange contracts associated with forecasted intercompany sales and interest
rate swaps associated with variable rate debt obligations, are reported in accumulated other
comprehensive income (loss). These amounts are subsequently reclassified into earnings through
other income (deductions) in the same period as the hedged items affect earnings. Substantially
all amounts recorded in accumulated other comprehensive income (loss) at year-end are expected to
be recognized in earnings over the next twelve months. Canon excludes the time value component
from the assessment of hedge effectiveness.
The amount of the hedging ineffectiveness was not material for the years ended December 31, 2005,
2004 and 2003. The amount of net gains or losses excluded from the assessment of hedge
effectiveness (time value component) which was recorded in other income (deductions) was net losses
of Yen 3,725 million, Yen 2,096 million and Yen 490 million for the years ended December 31, 2005,
2004 and 2003, respectively.
Derivatives not designated as hedges
Canon has entered into certain foreign exchange contracts to manage its foreign currency exposures.
These foreign exchange contracts have not been designated as hedges. Accordingly, the changes in
fair value of the contracts are recorded in earnings immediately.
Contract amounts of foreign exchange contracts at December 31, 2005 and 2004 are set forth below:
December 31
2005
2004
(Millions of yen)
To sell foreign currencies
¥
645,188
¥
584,208
To buy foreign currencies
46,424
34,201
108
Table of Contents
Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
19.
Commitments and Contingent Liabilities
Commitments
At December 31, 2005, commitments outstanding for the purchase of property, plant and equipment
approximated Yen 87,244 million, and commitments outstanding for the purchase of parts and raw
materials approximated Yen 67,831 million.
Canon occupies sales offices and other facilities under lease arrangements accounted for as
operating leases. Deposits made under such arrangements aggregated Yen 13,790 million and Yen
14,307 million at December 31, 2005 and 2004, respectively, and are reflected under noncurrent
receivables on the accompanying consolidated balance sheets. Rental expenses under the operating
lease arrangements amounted to Yen 38,297 million, Yen 41,381 million and Yen 42,131 million for
the years ended December 31, 2005, 2004 and 2003, respectively.
Future minimum lease payments required under noncancellable operating leases that have initial or
remaining lease terms in excess of one year at December 31, 2005 are as follows:
(Millions of yen)
Year ending December 31:
2006
¥
14,571
2007
10,723
2008
7,970
2009
5,684
2010
4,139
Thereafter
9,502
Total future minimum lease payments
¥
52,589
109
Table of Contents
Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
19.
Commitments and Contingent Liabilities (continued)
Guarantees
Canon provides guarantees for bank loans of its employees, affiliates and other companies. The
guarantees for the employees are principally made for their housing loans. The guarantees of loans
of its affiliates and other companies are made to ensure that those companies operate with less
financial risk.
For each guarantee provided, Canon would have to perform under a guarantee if the borrower defaults
on a payment within the contract periods of 1 year to 30 years, in the case of employees with
housing loans, and of 1 year to 10 years, in the case of affiliates and other companies. The
maximum amount of undiscounted payments Canon would have had to make in the event of default is Yen
38,550 million at December 31, 2005. The carrying amounts of the liabilities recognized for
Canon's obligations as a guarantor under those guarantees at December 31, 2005 were not
significant.
Canon also issues contractual product warranties under which it generally guarantees the
performance of products delivered and services rendered for a certain period or term. Changes in
accrued product warranty cost for the year ended December 31, 2005 and 2004 are summarized as
follows:
Year ended December 31
2005
2004
(Millions of yen)
Balance at beginning of year
¥
14,264
¥
10,512
Addition
18,510
13,319
Utilization
(15,580
)
(9,400
)
Other
(448
)
(167
)
Balance at end of year
¥
16,746
¥
14,264
Legal proceedings
In February 2003, a lawsuit was filed by St. Clair Intellectual Property Consultants, Inc. ("St.
Clair") against the Company and one of its subsidiaries in the United States District Court of
Delaware, which accused the Company of infringement of patents related to certain technology. In
connection with this case, in October 2004, a jury preliminarily found damages against the Company
of approximately Yen 4,000 million based on a percentage of certain product sales in the United
States through 2003. Subsequent to this jury finding, St. Clair also made a motion to the court for
damages relating to certain 2004 sales, using the same royalty rate awarded by the jury which could
result in additional in damages. There are additional defenses that
are yet to be litigated in a
follow-up non-jury trial solely before a judge; thus, a final decision by the court, as to both infringement
and the total amount of damages, has not yet been reached.
110
Table of Contents
Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
19.
Commitments and Contingent Liabilities (continued)
In November 2003, a lawsuit was filed by a former employee against the Company at the Tokyo
District Court in Japan. The lawsuit alleges that the former employee is entitled to Yen 45,872
million as compensation for an invention related to certain technology used by the Company, and the
former employee has sued for a partial payment of Yen 1,000 million and interest thereon. The case
is still pending and the final outcome is not yet determinable.
In Germany, Verwertungsgesellschaft Wort ("VG Wort"), a collecting agency representing certain
copyright holders, has filed a series of lawsuits seeking to impose copyright levies upon digital
products such as PCs and printers, that allegedly enable the reproduction of copyrighted materials,
against the companies importing and distributing these digital products. In May 2004, VG Wort
filed a civil lawsuit against Hewlett-Packard GmbH seeking for levies on multi-function printers.
This is an industry test case under which Hewlett-Packard GmbH represents other companies sharing
common interests, and Canon has undertaken to be bound by the final decision of this court case.
The court of first instance and the court of appeals held that the multi-function printers were
subject to a levy. In particular, the court of appeals ordered Hewlett-Packard GmbH to pay the
amount equivalent to the levies imposed on photocopiers (EUR 38.35 to EUR 613.56 per unit,
depending on printing speed and color printing capability). This lawsuit is currently under appeal
before the German Federal Supreme Court. With regard to single-function printers, VG Wort filed a
separate lawsuit on January 3, 2006 against Canon seeking for payment of copyright levies. Canon,
other companies and the industry associations have expressed opposition to such extension of the
levy scope and the final conclusion of these court cases including the amount of levies to be
imposed, remains uncertain.
Canon is involved in various claims and legal actions, including those noted above, arising in the
ordinary course of business. In accordance with SFAS No. 5, "Accounting for Contingencies," Canon
has recorded provisions for liabilities when it is probable that liabilities have been incurred and
the amount of loss can be reasonably estimated. Canon reviews these provisions at least quarterly
and adjusts these provisions to reflect the impact of the negotiations, settlements, rulings,
advice of legal counsel and other information and events pertaining to a particular case. Based on
its experience, Canon believes that any damage amounts claimed in the specific matters discussed
above are not a meaningful indicator of Canon's potential liability. In the opinion of management,
the ultimate disposition of the above mentioned matters will not have a material adverse effect on
Canon's consolidated financial position, results of operations, or cash flows. However, litigation
is inherently unpredictable. While Canon believes that it has valid defenses with respect to legal
matters pending against it, it is possible that Canon's consolidated financial position, results of
operations, or cash flows could be materially affected in any particular period by the unfavorable
resolution of one or more of these matters.
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
20.
Disclosures about the Fair Value of Financial Instruments and Concentrations of Credit Risk
Fair value of financial instruments
The estimated fair values of Canon's financial instruments at December 31, 2005 and 2004 are set
forth below. The following summary excludes cash and cash equivalents, trade receivables, finance
receivables, noncurrent receivables, short-term loans, trade payables, accrued expenses for which
fair value approximate their carrying amounts. The summary also excludes marketable securities and
investments which are disclosed in Note 3.
December 31
2005
2004
Carrying
Estimated
Carrying
Estimated
amount
fair value
amount
fair value
(Millions of yen)
Long-term debt, including
current installments
¥
(32,074
)
¥
(35,194
)
¥
(38,530
)
¥
(44,620
)
Foreign exchange contracts:
Assets
2,250
2,250
4,875
4,875
Liabilities
(10,062
)
(10,062
)
(11,020
)
(11,020
)
112
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Canon Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
20.
Disclosures about the Fair Value of Financial Instruments and Concentrations of Credit
Risk (continued)
The following methods and assumptions are used to estimate the fair value in the above table.
Long-term debt
The fair values of Canon's long-term debt instruments are based on the quoted price in the most
active market or the present value of future cash flows associated with each instrument discounted
using Canon's current borrowing rate for similar debt instruments of comparable maturity.
Foreign exchange contracts
The fair values of foreign exchange contracts, all of which are used for purposes other than
trading, are estimated by obtaining quotes from brokers.
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and
information about the financial instruments. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly
affect the estimates.
Concentrations of credit risk
At December 31, 2005 and 2004, one customer accounted for approximately 12% and 13% of consolidated
trade receivables, respectively. Although Canon does not expect that the customer will fail to
meet its obligations, Canon is potentially exposed to concentrations of credit risk if the customer
failed to perform according to the terms of the contracts.
21.
Supplemental Cash Flow Information
For the years ended December 31, 2005, 2004 and 2003, aggregate common stock and additional paid-in
capital arising from conversion of convertible debt amounted to Yen 1,147 million, Yen 9,938
million and Yen 3,297 million, respectively.
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CANON INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 2005, 2004 and 2003
Balance at
Add
Deduct
Add
Balance
beginning of
charge to
bad debts
translation
at end of
period
income
written off
adjustments
period
(Millions of yen)
Year ended December 31, 2005:
Allowance for doubtful receivables
¥
11,657
¥
560
¥
1,180
¥
691
¥
11,728
Year ended December 31, 2004:
Allowance for doubtful receivables
¥
14,423
¥
449
¥
3,515
¥
300
¥
11,657
Year ended December 31, 2003:
Allowance for doubtful receivables
¥
12,031
¥
5,232
¥
2,878
¥
38
¥
14,423
114
Table of Contents
Item 18.
Financial Statements
Not applicable.
Item 19.
Financial Statements and Exhibits
(a)
The following consolidated financial statements and schedule II included in Item 17. "Financial Statements."
Consolidated financial statements of Canon Inc. and Subsidiaries:
Report of Ernst & Young ShinNihon, Independent Registered Public
Accounting Firm
Report of KPMG AZSA & Co., Independent Registered Public
Accounting Firm
Consolidated Balance Sheets as of December 31, 2005 and 2004
Consolidated Statements of Income for the years ended December 31, 2005,
2004 and 2003
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2005, 2004 and 2003
Consolidated Statements of Cash Flows for the years ended December 31,
2005, 2004 and 2003
Notes to Consolidated Financial Statements
Schedule:
Schedule II Valuation and Qualifying Accounts for the years ended
December 31, 2005, 2004 and 2003
(b)
List of exhibits
Exhibit:
1.1
Articles of Incorporation of Canon Inc. (Translation)
1.2
Regulations of the Board of Directors of Canon Inc. (Translation), incorporated by
reference from the annual report on Form20-F (Commission file number
001-15122) filed on June 10, 2004
2
Regulations for Handling of Shares of Canon Inc. (Translation), incorporated by
reference from the annual report on Form20-F (Commission file number
001-15122) filed on June 16, 2005
8
List of Significant Subsidiaries (See "Organizational Structure" in Item 4.C. of this
Form 20-F)
11.1
Canon Group Code of Conduct (Translation) , incorporated by reference from the annual
report on Form20-F (Commission file number 001-15122) filed on June 10, 2004
11.2
Code of Ethics (Supplement to The Canon Group Code of Conduct) (Translation),
incorporated by reference from the annual report on Form20-F
(Commission file number 001-15122) filed on June
10, 2004
12
302 Certifications
13
906 Certification
115
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, as amended, the registrant certifies that it meets all of the
requirements for filing on Form 20-F and has duly caused this Annual Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
CANON INC.
(Registrant)
By:
/s/ Toshizo Tanaka
(Senior Managing Director,
Group Executive of Finance and
Accounting Headquarters)
Canon INC.
30-2, Shimomaruko 3-chome,
Ohta-ku, Tokyo 146-8501, Japan
Date April 10, 2006
116
Table of Contents
EXHIBIT INDEX
Exhibit number
Title
Exhibit 1.1
Articles of Incorporation of Canon Inc. (Translation)
Exhibit 1.2
Regulations of the Board of Directors of Canon Inc. (Translation),
incorporated by reference from the annual report
on Form 20-F (Commission file number 001-15122) filed on June 10, 2004
Exhibit 2
Regulations for Handling of Shares of Canon Inc. (Translation), incorporated
by reference from the annual report
on Form 20-F (Commission file number 001-15122) filed on June 16, 2005
Exhibit 8
List of Significant Subsidiaries (See "Organizational Structure" in Item
4.C. of this Form 20-F)
Exhibit 11.1
Canon Group Code of Conduct (Translation) , incorporated by reference from
the annual report
on Form 20-F (Commission file number 001-15122) filed on June 10, 2004
Exhibit 11.2
Code of Ethics (Supplement to The Canon Group Code of Conduct)
(Translation), incorporated by reference from the annual report on
Form 20-F (Commission file number 001-15122) filed on June 10, 2004
Exhibit 12
302 Certifications
Exhibit 13
906 Certification
117