Edgar Filing: CANON INC

CANON INC.

FORM 6-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

For the month of April , 2004

CANON INC.

(Translation of registrant’s name into English)

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

(Address of principal executive offices)

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

Form 20-F X Form 40-F

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

Yes No X

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

TABLE OF CONTENTS


SIGNATURES
CONSOLIDATED RESULTS FOR THE FIRST QUARTER ENDED MARCH 31, 2004
Operating Results and Financial Conditions
Information on Replacement of Share Certificates As a Result of Change in Number of Shares Constituting One Unit
Notice regarding change (dismissal) of accounting auditors

SIGNATURES

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


		CANON INC. (Registrant)
Date April 28, 2004	By	/s/ Hiroshi Kawashimo (Signature)*
		Hiroshi Kawashimo General Manager, Finance Division Canon Inc.

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

The following materials are included.

Consolidated Results For The First Quarter Ended March 31, 2004

Information on Replacement of Share Certificates As a Result of Change in Number of Shares Constituting One Unit

Notice Regarding Change (dismissal) of Accounting Auditors

(CANON LOGO)

April 27, 2004

CONSOLIDATED RESULTS FOR
THE FIRST QUARTER ENDED MARCH 31, 2004

CONSOLIDATED RESULTS

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

Actual

Projected

Three months

Year ending

ended March 31,

December 31,

2004

2003

Change(%)

2004

Change(%)

(Unaudited)

Net sales

798,052

731,561

9.1

7,528,792

3,400,000

6.3

Operating profit

133,523

117,407

13.7

1,259,651

499,000

9.8

Income before income taxes and minority interests

135,862

117,199

15.9

1,281,717

500,000

11.6

Net income

84,280

71,601

17.7

795,094

309,000

12.1

Earnings per share:

— Basic

95.50

81.57

17.1

0.90

348.67

11.1

— Diluted

95.02

80.69

17.8

0.90

—

Actual

As of

March 31, 2004

December 31, 2003

Change(%)

March 31, 2004

(Unaudited)

(Audited)

(Unaudited)

Total assets

3,193,630

3,182,148

0.4

30,128,585

Stockholders’ equity

1,920,080

1,865,545

2.9

18,113,962

Notes:	1.		Canon’s consolidated financial statements conform with accounting principles generally accepted in the United States of America.
	2.		U.S. dollar amounts are translated from yen at the rate of JPY106 = U.S.$1, the approximate exchange rate on the Tokyo Foreign Exchange Market as of March 31, 2004, solely for the convenience of the reader.



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

- 1 -

Operating Results and Financial Conditions

2004 First Quarter in Review

Looking back at the global economy in the first quarter of 2004, in the United States, while employment conditions remained stagnant after a modest improvement, the economy recovered strongly supported by continued growth in tax-cut driven consumer spending, and boosted private-sector capital investment following the increased rate of capacity utilization due to stepped up production. The economies in Europe also experienced a moderate recovery sustained by increased export sales and capital investments accompanying the upturn in the U.S. economy. In Asia, while China continued to record high economic growth, driven by active investment in infrastructure and increased capital investment in line with an expansion in export sales, other Asian economies were also in recovery mode, enabling the region to maintain substantial growth. In Japan, a gradual recovery was evident, with consumer spending and employment conditions picking up and the expansion of the U.S. and Asian economies underpinning an increase in export sales and healthy capital investment.

As for the markets in which the Canon Group operates, demand for digital cameras overseas continued to grow significantly during the term, while the rate of growth slowed in the domestic Japanese market. Although shifting business demand toward multifunctionality and color stimulated strong sales of network digital multifunction devices (MFDs), computer peripherals, including printers, struggled amid severe price competition and the shift in demand toward lower priced models, which has accompanied the increase in high cost-performance models. In the field of optical equipment, capital spending for semiconductor- production equipment recovered owing to such factors as the high rate of capacity utilization by semiconductor manufacturers, and the sustained high price of memory devices resulting from replacement demand for personal computers and the significant growth in demand for digital electrical appliances. Moreover, increased demand for liquid crystal display (LCD) televisions fueled growth in the market for projection aligners, which are used in the production of LCDs. The average value of the yen for the quarter was ¥107.43 to the U.S. dollar and ¥134.02 to the euro, representing a year-on-year increase of 11% against the U.S. dollar, and a decrease of 5% against the euro.

Amid these conditions, Canon’s consolidated net sales for the first quarter increased by 9.1% from the year-ago period to ¥798.1 billion (U.S.$7,529 million), boosted by a significant rise in sales of digital cameras and color network MFDs, along with a substantial increase in sales of semiconductor-production equipment and projection aligners used in the production of LCDs. Net income for the quarter recorded an all-time high of ¥84.3 billion (U.S.$795 million), a year-on-year increase of 17.7%. The results mark the seventh consecutive quarter of sales and profit growth, beginning with the third quarter of 2002. Canon’s gross profit ratio for the quarter was 49.6%, representing a decline of 1.1% from the 50.7% recorded for the first quarter of 2003. Although production-reform efforts continued during the term, the decline in the gross profit ratio was mainly caused by a combination of factors: the appreciation of the yen against the U.S. dollar, a slowdown in cost-cutting performance due to the large number of new products launched during the first quarter, and severe price competition. Owing to a substantial increase in unit sales, however, gross profit increased by 6.6% to ¥395.5 billion (U.S.$3,731 million). Selling, general and administrative expenses for the first quarter rose 3.3% year on year, which is less than the growth rate of net sales for the quarter, with R&D expenditures increasing by ¥3.7 billion (U.S.$35 million) to ¥57.5 billion (U.S.$543 million), while other selling, general and administrative expenses maintained the same level as the year-ago period. Consequently, operating profit in the first quarter totaled ¥133.5 billion (U.S.$1,260 million), a substantial increase of 13.7%. Other income (deductions) improved by ¥2.5 billion (U.S.$24 million), with reduced equity losses of affiliated companies and gains on the disposal of marketable securities offsetting an increase in currency exchange losses on foreign-currency-denominated trade receivables, which resulted from the rapid appreciation of the yen against the U.S. dollar in late March. As a result, income before income taxes in the first quarter totaled ¥135.9 billion (U.S.$1,282 million), a year-on-year increase of 15.9%. The effective tax rate during the quarter was 2.8% lower compared with the previous year. As a result, net income for the first quarter of 2004 totaled ¥84.3 billion (U.S.$795 million).

Basic earnings per share for the quarter was ¥95.50 (U.S.$0.90), a year-on-year increase of ¥13.93.

- 2 -

Results by Product Segment

In the business machine segment, demand for network digital MFDs, which are grouped in the office imaging products sub-segment, indicates a shift from monochrome machines to color models, as well as a trend toward higher-end features. Additionally, the Color imageRUNNER C3200/iRC3200N, Canon’s first color offering in the powerful imageRUNNER-series lineup, continued to sell well in both domestic and overseas markets. The iRC3100, which was introduced in the domestic Japanese market in the second half of 2003, has also been launched in Europe and has been received well in both markets. Among monochrome network digital MFDs, such low-end models as the iR1600/2000 series recorded considerable sales increases, while mid-class and high-end models such as the iR2200 series and iR5000 series, respectively, also achieved strong sales. Overall, sales of office imaging products for the quarter realized a year-on-year increase of 5.4%. In the field of computer peripherals, laser beam printers enjoyed a year-on-year increase in unit sales of nearly 20%, with color models showing a gradual improvement and monochrome systems, particularly personal-use models, also demonstrating growth. Although laser beam printer sales increased on a unit basis, the sales amount decreased slightly as a result of the appreciation of the yen against the U.S. dollar and a shift in demand toward lower priced models. Inkjet printers recorded a unit sales increase of approximately 30% as well as increased sales in terms of value, with the i560 and i860 selling briskly, especially in Japan and Europe, and the MultiPASS MP700/MP730 high-speed multifunctional systems dramatically increasing unit sales. As a result, while sales of computer peripherals in the first quarter increased on a local currency basis, the appreciation of the yen resulted in a slight overall decrease of 1.1%. Sales of business information products, including computers, micrographics and calculators, decreased by 12.9% due to the intentional curtailing of personal computer sales in the domestic market. Collectively, sales of business machines in the quarter totaled ¥559.3 billion (U.S.$5,277 million), a year-on-year increase of 1.2%. While the gross profit ratio declined slightly for the quarter due to the appreciation of the yen, the operating profit ratio for the business machine segment remained at the year-ago level, supported by such factor as a decrease in sales to expense ratio. As a result, operating profit for the quarter was ¥124.6 billion (U.S.$1,175 million), a year-on-year increase of 0.9%. From this quarter, Canon has reclassified information-systems-related sales by subsidiaries to better reflect the product relationship. These sales, which had been grouped with “optical and other products,” are now included in the “office imaging products” segment. Accordingly, previous-year sales for each category have been restated in line with the change.

Within the camera segment, amid the continued strong demand for digital models worldwide, sales of compact digital cameras showed a significant growth, mainly led by PowerShot A70 and PowerShot S400 DIGITAL ELPH. Seven new PowerShot-series models which were released in March also have been well received in the market. Canon’s digital SLR cameras continued to enjoy robust growth, bolstered by the EOS Digital Rebel, launched last September. As a result, unit sales of digital cameras grew nearly 90% compared with the year-ago period. In the field of digital video camcorders, the ZR90/85/80 and ELURA70/65/60 models achieved favorable sales during the quarter, reflecting improved market conditions. As a result, overall camera sales continued to achieve double-digit growth of 33.8%, achieving total sales of ¥157.2 billion (U.S.$1,483 million). Operating profit for the camera segment appreciably advanced 34.7% to ¥29.2 billion (U.S.$275 million), attributable to the decrease in the sales to expense ratio, which resulted in a slight year-on-year increase in the operating profit ratio for the period, while the gross profit ratio decreased slightly owing to the appreciation of the yen and price competition.

In the optical and other products segment, sales of aligners for the production of LCDs realized notable growth as the PC monitor industry continued its shift from CRT to LCD computer displays, and the LCD television market continued to expand. Sales of steppers, used for the production of semiconductors, also increased as investment in semiconductor-production equipment showed a recovery owing to the improved conditions in the semiconductor-device market. As a result, sales for the segment increased by 32.6% to ¥81.5 billion (U.S.$769 million). The operating profit ratio for the segment improved substantially due to the significant growth in sales, enabling optical and other products to record an operating profit of ¥11.7 billion (U.S.$111 million), compared with ¥1.7 billion for the same period of the previous year.

Cash Flow

In the first quarter of 2004, Canon maintained cash flow from operating activities of ¥105.1 billion (U.S.$991 million), a year-on-year increase of ¥8.0 billion (U.S.$75 million), reflecting the substantial growth in sales and increased cash proceeds from sales, combined with an increase in net income. Capital expenditure totaled ¥54.7 billion (U.S.$517 million), which was used mainly to expand production capabilities in both domestic and overseas regions. Cash flow from investing activities totaled ¥49.9 billion (U.S.$471 million). As a result, free cash flow, or cash flow from operating activities minus cash flow from investing activities, totaled positive ¥55.2 billion (U.S.$521 million).

- 3 -

Cash flow from financing activities recorded an outlay of ¥56.2 billion (U.S.$530 million), mainly resulting from active efforts to repay short-term loans toward the goal of improving the company’s financial position and an increase in the dividend payout. Consequently, cash and cash equivalents, which totaled ¥683.5 billion (U.S.$6,448 million), although representing a ¥6.8 billion (U.S.$64 million) decrease from the end of the previous year, remained at a high level.

Outlook

Regarding the outlook for the global economy in the second quarter and thereafter, although global economic prospects remain uncertain due to concern over prolonged confusion in Iraq and the threat of future terrorist attacks, which could adversely affect consumer spending and exchange rate trends, the global economy is likely to continue its course toward recovery.

In the businesses in which Canon is involved, the digital camera market is expected to continue enjoying rapid growth. A shortage of key parts from suppliers, however, could have a restraining effect on market growth. As for network digital MFDs and laser beam printers, while stable demand is projected for both monochrome and full-color models, severe price competition and shifting demand toward lower priced models is expected to adversely affect sales. Within the semiconductor-production equipment market, while a recovery in capital investment by semiconductor manufacturers is likely to continue, the pace will probably slow down in the latter half of the year. In the market for projection aligners used in the production of LCDs, although demand for LCD production equipment is expected to show continued growth, improved process yields could negatively affect demand, resulting in the sale of fewer additional units than initially projected.

Although uncertainty surrounds several factors that could affect currency exchange rates, significant changes in rates are not anticipated. The yen is expected to be slightly stronger against the U.S. dollar and euro compared with the previous year.

Upon considering the current market and currency exchange environments, the company has revised upward its forecasts for the 2004 fiscal year and now anticipates consolidated net sales of ¥3,400.0 billion (U.S.$32,075 million), consolidated income before income taxes of ¥500.0 billion (U.S.$4,717 million), and consolidated net income of ¥309.0 billion (U.S.$2,915 million). The company also projects non-consolidated net sales of ¥2,230.0 billion (U.S.$21,038 million), non-consolidated ordinary profit of ¥355.0 billion (U.S.$3,349 million), and non-consolidated net income of ¥232.0 billion (U.S.$2,189 million). These forecasts assume currency exchange rates of ¥105.00 to the U.S. dollar and ¥125.00 to the euro for the remainder of 2004.

- 4 -

Consolidated Outlook


1st Half	Millions of yen
	Six months ending June 30, 2004				Change		Six months ended June 30, 2003		Change (%)
	Previous Outlook (A)		Revised Outlook (B)		(B - A)		Results (C)		(B / C)
Net sales	¥	1,570,000	¥	1,638,000	¥	68,000	¥	1,535,588	+	6.7	%
Income before income taxes		226,000		249,000		23,000		215,506	+	15.5	%
Net income		137,000		154,000		17,000		127,767	+	20.5	%


Fiscal year	Millions of yen
	Year ending December 31, 2004				Change		Year ended December 31, 2003		Change (%)
	Previous Outlook (A)		Revised Outlook (B)		(B - A)		Results (C)		(B / C)
Net sales	¥	3,330,000	¥	3,400,000	¥	70,000	¥	3,198,072	+	6.3	%
Income before income taxes		470,000		500,000		30,000		448,170	+	11.6	%
Net income		286,000		309,000		23,000		275,730	+	12.1	%

Non-consolidated Outlook


1st Half	Millions of yen
	Six months ending June 30, 2004				Change		Six months ended June 30, 2003		Change (%)
	Previous Outlook (A)		Revised Outlook (B)		(B - A)		Results (C)		(B / C)
Net sales	¥	1,020,000	¥	1,056,000	¥	36,000	¥	946,551	+	11.6	%
Ordinary profit		165,000		177,000		12,000		164,293	+	7.7	%
Net income		107,000		118,000		11,000		128,775	–	8.4	%


Fiscal year	Millions of yen
	Year ending December 31, 2004				Change		Year ended December 31, 2003		Change (%)
	Previous Outlook (A)		Revised Outlook (B)		(B - A)		Results (C)		(B / C)
Net sales	¥	2,170,000	¥	2,230,000	¥	60,000	¥	2,023,722	+	10.2	%
Ordinary profit		338,000		355,000		17,000		320,616	+	10.7	%
Net income		217,000		232,000		15,000		228,667	+	1.5	%

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

- 5 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

1.		CONSOLIDATED STATEMENTS OF INCOME

		Three months ended March 31, 2004 and 2003

Millions of yen

Thousands of
U.S. dollars

2004

2003

Change(%)

2004

(Unaudited)

Net sales

798,052

731,561

+ 9.1

7,528,792

Cost of sales

402,595

360,605

3,798,066

Gross profit

395,457

370,956

+ 6.6

3,730,726

Selling, general and administrative expenses

261,934

253,549

2,471,075

Operating profit

133,523

117,407

+ 13.7

1,259,651

Other income (deductions):

Interest and dividend income

1,308

2,196

12,340

Interest expense

(771

)

(1,246

)

(7,274

)

Other, net

1,802

(1,158

)

17,000

2,339

(208

)

22,066

Income before income taxes and minority interests

135,862

117,199

+ 15.9

1,281,717

Income taxes

48,591

45,216

458,406

Income before minority interests

87,271

71,983

823,311

Minority interests

2,991

382

28,217

Net income

84,280

71,601

+ 17.7

795,094

Note:

Canon’s comprehensive income consists of net income, change in foreign currency translation adjustments, change in net unrealized gains (losses) on securities, change in minimum pension liability adjustments and change in net gains (losses) on derivative financial instruments. Comprehensive income for three months ended March 31, 2004 and 2003 were JPY73,839 million (U.S.$696,594 thousand) and JPY91,621 million, respectively.

2.		DETAILS OF SALES

		Three months ended March 31, 2004 and 2003

Millions of yen

Thousands of
U.S. dollars

Sales by product

2004

2003

Change(%)

2004

(Unaudited)

Business machines:

Office imaging products

269,310

255,403

+ 5.4

2,540,660

Computer peripherals

260,782

263,599

- 1.1

2,460,208

Business information products

29,222

33,555

- 12.9

275,679

559,314

552,557

+ 1.2

5,276,547

Cameras

157,225

117,544

+ 33.8

1,483,255

Optical and other products

81,513

61,460

+ 32.6

768,990

Total

798,052

731,561

+ 9.1

7,528,792

Millions of yen

Thousands of
U.S. dollars

Sales by region

2004

2003

Change(%)

2004

(Unaudited)

Japan

201,112

185,978

+ 8.1

1,897,283

Overseas:

Americas

237,578

242,820

- 2.2

2,241,302

Europe

247,375

216,411

+ 14.3

2,333,726

Other areas

111,987

86,352

+ 29.7

1,056,481

596,940

545,583

+ 9.4

5,631,509

Total

798,052

731,561

+ 9.1

7,528,792


Notes:	Beginning this quarter, 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)” to better reflect present relation with those products. Accordingly, information for previous fiscal years has been reclassified to conform with the current classification.

	1.	The primary products included in each of the product segments are as follows: Business machines:
		Office imaging products : Office network digital multifunction devices (MFDs) / Color network digital MFDs / Office copying machines / Personal-use copying machines / Full-color copying machines / etc.
		Computer peripherals : Laser beam printers / Inkjet printers / Inkjet multifunction peripherals / Image scanners / etc.
		Business information products : Computer information systems / Micrographic equipment / Personal information products / etc.
		Cameras : SLR cameras / Compact cameras / Digital cameras / Digital video camcorders / etc.
		Optical and other products : Semiconductor production equipment / Mirror projection mask aligners for LCD panels / Broadcasting equipment / Medical equipment / Components / etc.

	2.	The countries and regions included in each regional category are as follows: Americas: United States of America, Canada, Latin America / Europe: England, Germany, France, Netherlands / Other Areas: Asian regions, China, Oceania

- 6 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

3.		SEGMENT INFORMATION BY PRODUCT

		Three months ended March 31, 2004 and 2003

Millions of yen

Thousands of
U.S. dollars

2004

2003

Change(%)

2004

(Unaudited)

Business Machines

Net sales:

Unaffiliated customers

559,314

552,557

+ 1.2

5,276,547

Intersegment

—

Total

559,314

552,557

+ 1.2

5,276,547

Operating cost and expenses

434,720

429,081

+ 1.3

4,101,132

Operating profit

124,594

123,476

+ 0.9

1,175,415

Cameras

Net sales:

Unaffiliated customers

157,225

117,544

+33.8

1,483,255

Intersegment

—

Total

157,225

117,544

+33.8

1,483,255

Operating cost and expenses

128,030

95,876

+33.5

1,207,830

Operating profit

29,195

21,668

+34.7

275,425

Optical and other products

Net sales:

Unaffiliated customers

81,513

61,460

+32.6

768,990

Intersegment

30,698

32,196

- 4.7

289,604

Total

112,211

93,656

+19.8

1,058,594

Operating cost and expenses

100,464

91,948

+ 9.3

947,773

Operating profit

11,747

1,708

+ 587.8

110,821

Corporate and Eliminations

Net sales:

Unaffiliated customers

—

Intersegment

(30,698

)

(32,196

)

—

(289,604

)

Total

(30,698

)

(32,196

)

—

(289,604

)

Operating cost and expenses

1,315

(2,751

)

—

12,406

Operating profit

(32,013

)

(29,445

)

—

(302,010

)

Consolidated

Net sales:

Unaffiliated customers

798,052

731,561

+ 9.1

7,528,792

Intersegment

—

Total

798,052

731,561

+ 9.1

7,528,792

Operating cost and expenses

664,529

614,154

+ 8.2

6,269,141

Operating profit

133,523

117,407

+ 13.7

1,259,651

Notes:	1.	Beginning this quarter, 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)” to better reflect present relation with those products. Accordingly, information for previous fiscal years has been reclassified to conform with the current classification.

	2.	General corporate expenses of JPY32,083 million (U.S.$302,670 thousand) and JPY29,456 million in the first quarter of 2004 and 2003, respectively, are included in “Corporate and Eliminations.”

- 7 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

4.		CONSOLIDATED BALANCE SHEETS

		As of March 31, 2004 and December 31, 2003


	Millions of yen									Thousands of U.S. dollars
	As of			As of						As of
	March 31, 2004			December 31, 2003			Change			March 31, 2004
	(Unaudited)			(Audited)						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	¥	683,466		¥	690,298		¥	(6,832	)	$	6,447,792
Marketable securities		1,403			1,324			79			13,236
Trade receivables		516,799			539,006			(22,207	)		4,875,462
Inventories		470,099			444,244			25,855			4,434,897
Prepaid expenses and other current assets		260,932			255,905			5,027			2,461,623

Total current assets		1,932,699			1,930,777			1,922			18,233,010
Noncurrent receivables		15,353			16,543			(1,190	)		144,840
Investments		72,864			78,912			(6,048	)		687,396
Property, plant and equipment, net		853,865			846,433			7,432			8,055,330
Other assets		318,849			309,483			9,366			3,008,009

Total assets	¥	3,193,630		¥	3,182,148		¥	11,482		$	30,128,585

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term loans	¥	29,551		¥	39,136		¥	(9,585	)	$	278,783
Trade payables		428,580			391,181			37,399			4,043,208
Income taxes		54,827			83,064			(28,237	)		517,236
Accrued expenses		188,586			193,657			(5,071	)		1,779,113
Other current liabilities		96,929			120,265			(23,336	)		914,425

Total current liabilities		798,473			827,303			(28,830	)		7,532,765
Long-term debt, excluding current installments		37,756			59,260			(21,504	)		356,189
Accrued pension and severance cost		236,579			238,001			(1,422	)		2,231,877
Other noncurrent liabilities		37,635			30,843			6,792			355,047

Total liabilities		1,110,443			1,155,407			(44,964	)		10,475,878

Minority interests		163,107			161,196			1,911			1,538,745
Stockholders’ equity:
Common stock		173,349			168,892			4,457			1,635,368
Additional paid-in capital		401,518			396,939			4,579			3,787,906
Retained earnings		1,503,929			1,450,440			53,489			14,188,009
Accumulated other comprehensive income (loss)		(153,716	)		(143,275	)		(10,441	)		(1,450,151	)
Treasury stock		(5,000	)		(7,451	)		2,451			(47,170	)

Total stockholders’ equity		1,920,080			1,865,545			54,535			18,113,962

Total liabilities and stockholders’ equity	¥	3,193,630		¥	3,182,148		¥	11,482		$	30,128,585

Thousands of

Millions of yen

U.S. dollars

As of

March 31, 2004

December 31, 2003

March 31, 2004

(Unaudited)

(Audited)

(Unaudited)

Allowance for doubtful receivables

13,639

14,423

128,670

Accumulated depreciation

1,132,254

1,118,183

10,681,642

Accumulated other comprehensive income (loss):

Foreign currency translation adjustments

(95,484

)

(83,801

)

(900,793

)

Net unrealized gains (losses) on securities

6,412

6,784

60,491

Minimum pension liability adjustments

(65,790

)

(65,961

)

(620,660

)

Net gains (losses) on derivative financial instruments

1,146

(297

)

10,811

- 8 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

5.		CONSOLIDATED STATEMENTS OF CASH FLOWS

		Three months ended March 31, 2004 and 2003


	Millions of yen						Thousands of U.S. dollars
	Three months			Three months			Three months
	ended March 31,			ended March 31,			ended March 31,
	2004			2003			2004
	(Unaudited)			(Unaudited)			(Unaudited)
Net income	¥	84,280		¥	71,601		$	795,094
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		44,486			40,498			419,679
Loss on disposal of property, plant and equipment		2,751			1,665			25,953
Deferred income taxes		1,586			(82	)		14,962
Decrease in trade receivables		15,863			36,516			149,651
Increase in inventories		(29,854	)		(23,182	)		(281,641	)
Increase in trade payables		34,651			7,807			326,896
Decrease in income taxes		(28,214	)		(28,827	)		(266,170	)
Increase in accrued expenses		114			4,153			1,076
Other, net		(20,600	)		(13,049	)		(194,340	)

Net cash provided by operating activities		105,063			97,100			991,160
Cash flows from investing activities:
Capital expenditure		(54,749	)		(40,657	)		(516,500	)
Proceeds from sale of property, plant and equipment		1,390			1,265			13,113
Payment for purchase of available-for-sale securities		(411	)		(52	)		(3,877	)
Proceeds from sale of available-for-sale securities		6,083			6,150			57,387
Payment for purchase of other investments		(513	)		(19,831	)		(4,840	)
Other		(1,688	)		(1,629	)		(15,924	)

Net cash used in investing activities		(49,888	)		(54,754	)		(470,641	)
Cash flows from financing activities:
Proceeds from long-term debt		106			1,519			1,000
Repayment of long-term debt		(22,381	)		(2,645	)		(211,142	)
Decrease in short-term loans		(1,304	)		(19,990	)		(12,302	)
Dividends paid		(30,791	)		(15,360	)		(290,481	)
Other		(1,805	)		(1,032	)		(17,028	)

Net cash used in financing activities		(56,175	)		(37,508	)		(529,953	)
Effect of exchange rate changes on cash and cash equivalents		(5,832	)		4,662			(55,019	)

Net change in cash and cash equivalents		(6,832	)		9,500			(64,453	)
Cash and cash equivalents at beginning of period		690,298			521,271			6,512,245

Cash and cash equivalents at end of period	¥	683,466		¥	530,771		$	6,447,792

- 9 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

6.		BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

(1)		NUMBER OF GROUP COMPANIES


	March 31, 2004		December 31, 2004		Change
Subsidiaries		201		198		3
Affiliates		19		19		—

Total		220		217		3

CHANGES IN GROUP OF ENTITIES


Subsidiaries
Addition:		6 companies
Removal:		3 companies

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

		We have engaged KPMG to complete a review of the consolidated financial statements as of and for three months ended March 31, 2004, in accordance with Statement of Auditing Standards No.100, “Interim Financial Information,” established by the American Institute of Certified Public Accountants.

- 10 -

CONSOLIDATED RESULTS FOR
THE FIRST QUARTER ENDED MARCH 31, 2004

SUPPLEMENTARY REPORT

TABLE OF CONTENTS


		PAGE
1.	SALES BY REGION AND PRODUCT		S1
2.	SALES BY REGION AND PRODUCT (2003)		S2
3.	SEGMENT INFORMATION BY PRODUCT		S3
4.	OTHER INCOME / DEDUCTIONS		S3
5.	SEGMENT INFORMATION BY PRODUCT (2003)		S4
6.	SALES COMPOSITION BY PRODUCT		S5
7.	SALES GROWTH IN LOCAL CURRENCY		S5
8.	P&L SUMMARY (2nd Quarter 2004/Projection)		S6
9.	PROFITABILITY		S6
10.	IMPACT OF FOREIGN EXCHANGE RATES		S6
11.	CASH FLOWS		S6
12.	R&D EXPENDITURE		S7
13.	CAPITAL EXPENDITURE & DEPRECIATION AND AMORTIZATION		S7
14.	INVENTORIES		S7
15.	DEBT RATIO		S7
16.	OVERSEAS PRODUCTION RATIO		S7
17.	NUMBER OF EMPLOYEES		S7

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

Canon Inc.

SALES BY REGION AND PRODUCT


	(Millions of yen)
	2004						2003						Change year over year
	1st quarter		2nd quarter		Year		1st quarter		2nd quarter		Year		1st quarter			2nd quarter			Year
			(P)		(P)
Japan
Business machines		144,502		149,598		599,200		139,654		150,802		587,807		+ 3.5	%		– 0.8	%		+ 1.9	%

Office imaging products		82,909		89,491		342,000		75,246		82,308		316,156		+ 10.2	%		+ 8.7	%		+ 8.2	%
Computer peripherals		39,011		41,289		179,200		37,296		43,875		175,680		+ 4.6	%		– 5.9	%		+ 2.0	%
Business information products		22,582		18,818		78,000		27,112		24,619		95,971		– 16.7	%		– 23.6	%		– 18.7	%

Cameras		26,914		34,286		134,300		21,574		25,208		112,027		+ 24.8	%		+ 36.0	%		+ 19.9	%

Optical and other products		29,696		31,204		118,100		24,750		21,931		101,566		+ 20.0	%		+ 42.3	%		+ 16.3	%

Total		201,112		215,088		851,600		185,978		197,941		801,400		+ 8.1	%		+ 8.7	%		+ 6.3	%

Overseas
Business machines		414,812		418,288		1,679,700		412,903		431,152		1,706,993		+ 0.5	%		– 3.0	%		– 1.6	%

Office imaging products		186,401		204,799		766,400		180,157		201,465		765,839		+ 3.5	%		+ 1.7	%		+ 0.1	%
Computer peripherals		221,771		207,229		885,900		226,303		223,788		913,632		– 2.0	%		– 7.4	%		– 3.0	%
Business information products		6,640		6,260		27,400		6,443		5,899		27,522		+ 3.1	%		+ 6.1	%		– 0.4	%

Cameras		130,311		167,489		664,400		95,970		141,049		541,513		+ 35.8	%		+ 18.7	%		+ 22.7	%

Optical and other products		51,817		39,083		204,300		36,710		33,885		148,166		+ 41.2	%		+ 15.3	%		+ 37.9	%

Total		596,940		624,860		2,548,400		545,583		606,086		2,396,672		+ 9.4	%		+ 3.1	%		+ 6.3	%

Americas
Business machines		178,655		183,745		732,000		192,663		198,038		771,983		– 7.3	%		– 7.2	%		– 5.2	%

Office imaging products		85,281		93,019		353,200		88,153		95,541		369,795		– 3.3	%		– 2.6	%		– 4.5	%
Computer peripherals		90,190		87,610		365,100		100,857		99,306		388,022		– 10.6	%		– 11.8	%		– 5.9	%
Business information products		3,184		3,116		13,700		3,653		3,191		14,166		– 12.8	%		– 2.4	%		– 3.3	%

Cameras		51,541		67,159		267,500		41,585		63,545		245,019		+ 23.9	%		+ 5.7	%		+ 9.2	%

Optical and other products		7,382		5,618		25,100		8,572		6,685		28,164		– 13.9	%		– 16.0	%		– 10.9	%

Total		237,578		256,522		1,024,600		242,820		268,268		1,045,166		– 2.2	%		– 4.4	%		– 2.0	%

Europe
Business machines		184,783		176,917		724,400		173,391		179,676		724,227		+ 6.6	%		– 1.5	%		+ 0.0	%

Office imaging products		82,196		89,304		332,600		76,845		87,350		325,905		+ 7.0	%		+ 2.2	%		+ 2.1	%
Computer peripherals		99,795		85,205		381,100		94,382		90,352		387,662		+ 5.7	%		– 5.7	%		– 1.7	%
Business information products		2,792		2,408		10,700		2,164		1,974		10,660		+ 29.0	%		+ 22.0	%		+ 0.4	%

Cameras		56,832		74,868		290,700		38,742		60,342		219,219		+ 46.7	%		+ 24.1	%		+ 32.6	%

Optical and other products		5,760		6,340		26,800		4,278		8,090		25,596		+ 34.6	%		– 21.6	%		+ 4.7	%

Total		247,375		258,125		1,041,900		216,411		248,108		969,042		+ 14.3	%		+ 4.0	%		+ 7.5	%

Other areas
Business machines		51,374		57,626		223,300		46,849		53,438		210,783		+ 9.7	%		+ 7.8	%		+ 5.9	%

Office imaging products		18,924		22,476		80,600		15,159		18,574		70,139		+ 24.8	%		+ 21.0	%		+ 14.9	%
Computer peripherals		31,786		34,414		139,700		31,064		34,130		137,948		+ 2.3	%		+ 0.8	%		+ 1.3	%
Business information products		664		736		3,000		626		734		2,696		+ 6.1	%		+ 0.3	%		+ 11.3	%

Cameras		21,938		25,462		106,200		15,643		17,162		77,275		+ 40.2	%		+ 48.4	%		+ 37.4	%

Optical and other products		38,675		27,125		152,400		23,860		19,110		94,406		+ 62.1	%		+ 41.9	%		+ 61.4	%

Total		111,987		110,213		481,900		86,352		89,710		382,464		+ 29.7	%		+ 22.9	%		+ 26.0	%

Total
Business machines		559,314		567,886		2,278,900		552,557		581,954		2,294,800		+ 1.2	%		– 2.4	%		– 0.7	%

Office imaging products		269,310		294,290		1,108,400		255,403		283,773		1,081,995		+ 5.4	%		+ 3.7	%		+ 2.4	%
Computer peripherals		260,782		248,518		1,065,100		263,599		267,663		1,089,312		– 1.1	%		– 7.2	%		– 2.2	%
Business information products		29,222		25,078		105,400		33,555		30,518		123,493		– 12.9	%		– 17.8	%		– 14.7	%

Cameras		157,225		201,775		798,700		117,544		166,257		653,540		+ 33.8	%		+ 21.4	%		+ 22.2	%

Optical and other products		81,513		70,287		322,400		61,460		55,816		249,732		+ 32.6	%		+ 25.9	%		+ 29.1	%

Total		798,052		839,948		3,400,000		731,561		804,027		3,198,072		+ 9.1	%		+ 4.5	%		+ 6.3	%

(P)=Projection

(Note)
Beginning this quarter, 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) to better reflect present relation with those products. Accordingly, information for previous fiscal years has been reclassified to conform with the current classification.

- S1-

Canon Inc.

SALES BY REGION AND PRODUCT (2003)


	(Millions of yen)
	2003
	1st half		3rd quarter		4th quarter		2nd half		Year
Japan
Business machines		290,456		134,054		163,297		297,351		587,807

Office imaging products		157,554		75,370		83,232		158,602		316,156
Computer peripherals		81,171		35,426		59,083		94,509		175,680
Business information products		51,731		23,258		20,982		44,240		95,971

Cameras		46,782		28,376		36,869		65,245		112,027

Optical and other products		46,681		27,098		27,787		54,885		101,566

Total		383,919		189,528		227,953		417,481		801,400

Overseas
Business machines		844,055		417,048		445,890		862,938		1,706,993

Office imaging products		381,622		183,683		200,534		384,217		765,839
Computer peripherals		450,091		226,404		237,137		463,541		913,632
Business information products		12,342		6,961		8,219		15,180		27,522

Cameras		237,019		127,379		177,115		304,494		541,513

Optical and other products		70,595		33,644		43,927		77,571		148,166

Total		1,151,669		578,071		666,932		1,245,003		2,396,672

Americas
Business machines		390,701		189,818		191,464		381,282		771,983

Office imaging products		183,694		92,592		93,509		186,101		369,795
Computer peripherals		200,163		93,774		94,085		187,859		388,022
Business information products		6,844		3,452		3,870		7,322		14,166

Cameras		105,130		55,203		84,686		139,889		245,019

Optical and other products		15,257		6,478		6,429		12,907		28,164

Total		511,088		251,499		282,579		534,078		1,045,166

Europe
Business machines		353,067		168,229		202,931		371,160		724,227

Office imaging products		164,195		71,383		90,327		161,710		325,905
Computer peripherals		184,734		94,046		108,882		202,928		387,662
Business information products		4,138		2,800		3,722		6,522		10,660

Cameras		99,084		51,881		68,254		120,135		219,219

Optical and other products		12,368		6,090		7,138		13,228		25,596

Total		464,519		226,200		278,323		504,523		969,042

Other areas
Business machines		100,287		59,001		51,495		110,496		210,783

Office imaging products		33,733		19,708		16,698		36,406		70,139
Computer peripherals		65,194		38,584		34,170		72,754		137,948
Business information products		1,360		709		627		1,336		2,696

Cameras		32,805		20,295		24,175		44,470		77,275

Optical and other products		42,970		21,076		30,360		51,436		94,406

Total		176,062		100,372		106,030		206,402		382,464

Total
Business machines		1,134,511		551,102		609,187		1,160,289		2,294,800

Office imaging products		539,176		259,053		283,766		542,819		1,081,995
Computer peripherals		531,262		261,830		296,220		558,050		1,089,312
Business information products		64,073		30,219		29,201		59,420		123,493

Cameras		283,801		155,755		213,984		369,739		653,540

Optical and other products		117,276		60,742		71,714		132,456		249,732

Total		1,535,588		767,599		894,885		1,662,484		3,198,072

- S2-

Canon Inc.

SEGMENT INFORMATION BY PRODUCT


	(Millions of yen)
	2004									2003									Change year over year
	1st quarter			2nd quarter (P)			Year (P)			1st quarter			2nd quarter			Year			1st quarter			2nd quarter			Year
Business machines
Unaffiliated customers		559,314			567,886			2,278,900			552,557			581,954			2,294,800			+1.2	%		-2.4	%		-0.7	%
Intersegment		—			—			—			—			—			—			—			—			—

Total sales		559,314			567,886			2,278,900			552,557			581,954			2,294,800			+1.2	%		-2.4	%		-0.7	%

Operating profit		124,594			115,806			487,000			123,476			112,968			485,565			+0.9	%		+2.5	%		+0.3	%
% of sales		22.3	%		20.4	%		21.4	%		22.3	%		19.4	%		21.2	%		—			—			—

Cameras
Unaffiliated customers		157,225			201,775			798,700			117,544			166,257			653,540			+33.8	%		+21.4	%		+22.2	%
Intersegment		—			—			—			—			—			—			—			—			—

Total sales		157,225			201,775			798,700			117,544			166,257			653,540			+33.8	%		+21.4	%		+22.2	%

Operating profit		29,195			38,005			156,300			21,668			28,126			126,318			+34.7	%		+35.1	%		+23.7	%
% of sales		18.6	%		18.8	%		19.6	%		18.4	%		16.9	%		19.3	%		—			—			—

Optical and other products
Unaffiliated customers		81,513			70,287			322,400			61,460			55,816			249,732			+32.6	%		+25.9	%		+29.1	%
Intersegment		30,698			31,002			123,700			32,196			36,858			132,389			-4.7	%		-15.9	%		-6.6	%

Total sales		112,211			101,289			446,100			93,656			92,674			382,121			+19.8	%		+9.3	%		+16.7	%

Operating profit		11,747			853			15,500			1,708			-1,884			-9,883			+587.8	%		—			—
% of sales		10.5	%		0.8	%		3.5	%		1.8	%		-2.0	%		-2.6	%		—			—			—

Corporate and Eliminations
Unaffiliated customers		—			—			—			—			—			—			—			—			—
Intersegment		-30,698			-31,002			-123,700			-32,196			-36,858			-132,389			—			—			—

Total sales		-30,698			-31,002			-123,700			-32,196			-36,858			-132,389			—			—			—

Operating profit		-32,013			-44,187			-159,800			-29,445			-40,643			-147,576			—			—			—

Consolidated
Unaffiliated customers		798,052			839,948			3,400,000			731,561			804,027			3,198,072			+9.1	%		+4.5	%		+6.3	%
Intersegment		—			—			—			—			—			—			—			—			—

Total sales		798,052			839,948			3,400,000			731,561			804,027			3,198,072			+9.1	%		+4.5	%		+6.3	%

Operating profit		133,523			110,477			499,000			117,407			98,567			454,424			+13.7	%		+12.1	%		+9.8	%
% of sales		16.7	%		13.2	%		14.7	%		16.0	%		12.3	%		14.2	%		—			—			—

(P)=Projection

OTHER INCOME / DEDUCTIONS


	(Millions of yen)
	2004						2003						Change year over year
	1st quarter		2nd quarter (P)		Year (P)		1st quarter		2nd quarter		Year		1st quarter		2nd quarter		Year
Interest & dividend, net		537		563		1,600		950		1,030		4,657		-413		-467		-3,057
Forex gain / loss		-4,415		-2,985		-14,100		-1,679		-1,087		-20,311		-2,736		-1,898		+6,211
Equity earnings / loss of affiliated companies		106		294		1,500		-1,332		-712		-1,124		+1,438		+1,006		+2,624
Others, net		6,111		4,789		12,000		1,853		509		10,524		+4,258		+4,280		+1,476

Total		2,339		2,661		1,000		-208		-260		-6,254		+2,547		+2,921		+7,254

(P)=Projection

-S3-

Canon Inc.

SEGMENT INFORMATION BY PRODUCT (2003)


	(Millions of yen)
	2003
	1st half			3rd quarter			4th quarter			2nd half			Year
Business machines
Unaffiliated customers		1,134,511			551,102			609,187			1,160,289			2,294,800
Intersegment		—			—			—			—			—

Total sales		1,134,511			551,102			609,187			1,160,289			2,294,800

Operating profit		236,444			122,697			126,424			249,121			485,565
% of sales		20.8	%		22.3	%		20.8	%		21.5	%		21.2	%

Cameras
Unaffiliated customers		283,801			155,755			213,984			369,739			653,540
Intersegment		—			—			—			—			—

Total sales		283,801			155,755			213,984			369,739			653,540

Operating profit		49,794			38,695			37,829			76,524			126,318
% of sales		17.5	%		24.8	%		17.7	%		20.7	%		19.3	%

Optical and other products
Unaffiliated customers		117,276			60,742			71,714			132,456			249,732
Intersegment		69,054			35,056			28,279			63,335			132,389

Total sales		186,330			95,798			99,993			195,791			382,121

Operating profit		-176			-2,888			-6,819			-9,707			-9,883
% of sales		-0.1	%		-3.0	%		-6.8	%		-5.0	%		-2.6	%

Corporate and Eliminations
Unaffiliated customers		—			—			—			—			—
Intersegment		-69,054			-35,056			-28,279			-63,335			-132,389

Total sales		-69,054			-35,056			-28,279			-63,335			-132,389

Operating profit		-70,088			-32,942			-44,546			-77,488			-147,576

Consolidated
Unaffiliated customers		1,535,588			767,599			894,885			1,662,484			3,198,072
Intersegment		—			—			—			—			—

Total sales		1,535,588			767,599			894,885			1,662,484			3,198,072

Operating profit		215,974			125,562			112,888			238,450			454,424
% of sales		14.1	%		16.4	%		12.6	%		14.3	%		14.2	%

-S4-

Canon Inc.

SALES COMPOSITION BY PRODUCT


	2004									2003
	1st quarter			2nd quarter(P)			Year(P)			1st quarter			2nd quarter			Year
Office imaging products
Monochrome copying machines		63	%		62	%		62	%		70	%		67	%		67	%
Digital*		92	%		—			—			94	%		92	%		93	%
Analog*		8	%		—			—			6	%		8	%		7	%
Color copying machines		23	%		25	%		24	%		17	%		19	%		20	%
Others		14	%		13	%		14	%		13	%		14	%		13	%
Computer peripherals
Laser beam printers		69	%		71	%		69	%		71	%		70	%		70	%
Inkjet printers		28	%		27	%		29	%		26	%		27	%		27	%
(includes inkjet MFPs)
Others		3	%		2	%		2	%		3	%		3	%		3	%
Business information products
Personal computers		76	%		73	%		72	%		78	%		77	%		76	%
Others		24	%		27	%		28	%		22	%		23	%		24	%
Cameras
Film cameras / Lenses		17	%		12	%		13	%		24	%		21	%		21	%
Digital cameras		68	%		71	%		71	%		58	%		59	%		61	%
Video camcorders		15	%		17	%		16	%		18	%		20	%		18	%
Optical and other products
Semiconductor production equipment		65	%		64	%		66	%		57	%		48	%		54	%
Others		35	%		36	%		34	%		43	%		52	%		46	%

(P)=Projection

Among office-use monochrome copying machines (hardware only)

SALES GROWTH IN LOCAL CURRENCY


	2004
	1st quarter			2nd quarter(P)			Year(P)
Business machines
Japan		+3.5	%		-0.8	%		+1.9	%
Overseas		+5.0	%		+7.3	%		+5.1	%

Total		+4.6	%		+5.2	%		+4.3	%

Cameras
Japan		+24.8	%		+36.0	%		+19.9	%
Overseas		+40.2	%		+30.8	%		+30.6	%

Total		+37.4	%		+31.6	%		+28.8	%

Optical and other products
Japan		+20.0	%		+42.3	%		+16.3	%
Overseas		+46.9	%		+21.4	%		+41.7	%

Total		+36.1	%		+29.6	%		+31.4	%

Total
Japan		+8.1	%		+8.7	%		+6.3	%
Overseas		+14.0	%		+13.5	%		+13.2	%
Americas		+8.3	%		+7.9	%		+7.3	%
Europe		+11.8	%		+13.1	%		+12.0	%
Other areas		+35.7	%		+31.9	%		+31.9	%

Total		+12.5	%		+12.3	%		+11.4	%

(P)=Projection

-S5-

Canon Inc.

P&L SUMMARY (2nd Quarter 2004/Projection)


	(Millions of yen)
	2004		2003
					Change year
	2nd quarter(P)		2nd quarter		over year
Net sales		839,948		804,027		+4.5	%
Operating profit		110,477		98,567		+12.1	%
Income before income taxes		113,138		98,307		+15.1	%
Net income		69,720		56,166		+24.1	%

(P)=Projection

PROFITABILITY


	2004						2003
	1st quarter			Year(P)			1st quarter			Year
ROE		17.8	%		15.6	%		17.6	%		15.9	%
ROA		10.6	%		9.3	%		9.7	%		9.0	%

(P)=Projection

10.

IMPACT OF FOREIGN EXCHANGE RATES

(1)

Exchange rates


	(Yen)
	2004						2003
	1st quarter		2nd-4th quarter(P)		Year(P)		1st quarter		Year
Yen/US$		107.43		105.00		105.55		118.92		115.61
Yen/EUR		134.02		125.00		127.04		127.72		131.02

(P)=Projection

(2)

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


	(Billions of yen)
	2004
	1st quarter		Year(P)
US$		-29.3		-120.2
Euro		+9.4		-26.4
Other currencies		+0.7		+1.0

Total		-19.2		-145.6

(P)=Projection

(3)

Impact of foreign exchange rates per yen


	(Billions of yen)
	2004
	2nd-4th quarter(P)

On sales
US$		9.5
Euro		5.0
On operating profit
US$		5.0
Euro		3.5

(P)=Projection

11.

CASH FLOWS


	(Millions of yen)
	2004				2003
	1st quarter		Year(P)		1st quarter		Year
Net cash provided by operating activities
Net income		84,280		309,000		71,601		275,730
Depreciation and amortization		44,486		190,000		40,498		183,604
Other, net		-23,703		9,000		-14,999		6,315

Total		105,063		508,000		97,100		465,649

Net cash used in investing activities		-49,888		-308,000		-54,754		-199,948
Free cash flow		55,175		200,000		42,346		265,701
Net cash provided by (used in) financing activities		-56,175		-74,900		-37,508		-102,039
Effect of exchange rate changes on cash & cash equivalents		-5,832		-2,798		4,662		5,365
Net change in cash and cash equivalents		-6,832		122,302		9,500		169,027
Cash and cash equivalents at end of each period		683,466		812,600		530,771		690,298

(P)=Projection

-S6-

Canon Inc.

12.

R&D EXPENDITURE


	(Millions of yen)
	2004						2003
	1st quarter			Year(P)			1st quarter			Year
Business machines		26,044			—			25,779			119,975
Cameras		8,158			—			7,301			31,687
Optical and other products		23,326			—			20,755			107,478

Total		57,528			285,000			53,835			259,140

% of sales		7.2	%		8.4	%		7.4	%		8.1	%

(P)=Projection

13.

CAPITAL EXPENDITURE & DEPRECIATION AND AMORTIZATION


	(Millions of yen)
	2004				2003
	1st quarter		Year(P)		1st quarter		Year
Capital expenditure
Business machines		—		—		—		106,013
Cameras		—		—		—		25,894
Optical and other products		—		—		—		31,170
Corporate and eliminations		—		—		—		46,961

Total		54,749		300,000		40,657		210,038

Depreciation and amortization
Business machines		—		—		—		118,806
Cameras		—		—		—		17,712
Optical and other products		—		—		—		20,276
Corporate and eliminations		—		—		—		26,810

Total		44,486		190,000		40,498		183,604

(P)=Projection

14.

INVENTORIES

(1)

Inventories

(Millions of yen)

2004

2003

Mar. 31

Dec. 31

Difference

Business machines

244,754

241,477

+3,277

Cameras

83,828

64,043

+19,785

Optical and other products

141,517

138,724

+2,793

Total

470,099

444,244

+25,855

(2)

Inventories/Sales*


	(Days)
	2004		2003
	Mar. 31		Dec. 31		Difference
Business machines		38		38		0
Cameras		41		32		+9
Optical and other products		169		191		-22

Total		51		49		+2

Index based on the previous six months sales.

15.

DEBT RATIO


	2004			2003
	Mar. 31			Dec. 31			Difference
Total debt/Total assets		2.1	%		3.1	%		-1.0	%

16.

OVERSEAS PRODUCTION RATIO


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

17.

NUMBER OF EMPLOYEES


	2004		2003
	Mar. 31		Dec. 31		Difference
Japan		45,092		45,380		-288
Overseas		57,040		57,187		-147
Total		102,132		102,567		-435

-S7-

April 27, 2004

To Our Shareholders

Canon Inc.
30-2, Shimomaruko 3-chome,
Ohta-ku, Tokyo, Japan
Fujio Mitarai,
President and CEO

Information on Replacement of Share Certificates
As a Result of Change in Number of Shares Constituting One Unit

As reported previously, a resolution was adopted at a meeting of the Board of Directors of the Company held on January 29, 2004, regarding the amendment of the Articles of Incorporation to change the number of shares constituting one unit from 1,000 shares to 100 shares as of May 6, 2004 (Thursday).

In accordance with this change, the trading unit of the Company’s share at the Tokyo, Osaka, Nagoya, Fukuoka and Sapporo Stock Exchanges will be changed from 1,000 shares to 100 shares, as of the same day.

We would like to inform you of the procedures to replace the share certificate in your possession to certificates denominated in 100 shares, as stated below.

The use of the Central Securities Depository System, which eliminates the need to replace the old share certificates, is also explained thereafter for your consideration.

Summary of Replacement of Share Certificates

	1.		Share certificates to be replaced:

			Share certificates in denominations of 500, 1,000 and 10,000 shares

	2.		Promotion period for replacement of share certificates:

			From May 6, 2004 (Thursday) to June 30, 2004 (Wednesday)

			(Requests for replacement after the above period will also be acceptable, but you are kindly requested to complete the replacement procedures within the period.)

Place for replacement of share certificates:


Business handling place of transfer agent:		Stock Transfer Agency Department, Head Office, Mizuho Trust & Banking Co., Ltd. 2-1, Yaesu 1-chome, Chuo-ku, Tokyo

-1-


Mailing address and telephone number:		Stock Transfer Agency Department, Mizuho Trust & Banking Co., Ltd. 17-7, Saga 1-chome, Koto-ku, Tokyo 135-8722 Telephone: +81-3-5213-5213
Intermediary offices:		Branches of Mizuho Trust & Banking Co., Ltd.
		Head office and branches of Mizuho Investors Securities Co., Ltd. (For further details, please refer to the transfer service network listed below.)

Procedures for replacement of share certificates

	(1)		Request by visit:

			Please fill the necessary information in the attached Share Certificate Replacement Request, stamp the (registered) seal impression and present it together with the share certificates to be replaced at the place for replacement shown in Item 3 above.

	(2)		Request by mail:

			Please fill the necessary information in the Share Certificate Replacement Request, stamp the (registered) seal impression, enclose it together with the share certificates to be replaced in the envelope provided for mailing share certificates and mail them by registered mail from a nearby post office.

			(The postage will be free if you mail the said envelope during the promotion period for replacement of share certificates, so it is not necessary to affix a postage stamp.)

			[Note]

			Should you have deposited the share certificates for safe custody at securities companies, please ask the securities companies to take the procedures described above or retrieve the share certificates from the securities companies to follow the procedures by yourself.

			If you are using the Central Securities Depository System for share certificates in possession, you are not required to take the said procedures.

Issue of new share certificates

	(1)		A share certificate in denomination of 100 shares will be issued for each 100 shares, after the submission of old share certificates.

	(2)		Please kindly be advised that the issue of new share certificates will take approximately three weeks after the submission of old share certificates and that shares cannot be traded during that period.

-2-

II.		Handling of Under Unit Shares

		As a result of the change in the number of shares constituting one unit from 1,000 shares to 100 shares as of May 6, 2004 (Thursday), shares less than 100 shares will be handled as under unit shares, on and after the same day.

		Under these circumstances, please note that the issue of share certificates and the request for purchase or sale of the under unit shares will be handled as set out below.

	1.		Issue of share certificates concerning under unit shares

			Under unit shares registered on the register of shareholders as of April 30, 2004 (Friday, as May 1 through May 5 are holidays of the transfer agent) will be handled as follows:

	(1)		Share certificates in the denomination of 100 shares will be issued for shares in multiples of 100 and forwarded to the registered address by the Recorded Delivery Mail in the middle of May 2004;

	(2)		Shares falling short of 100 shares will remain to be registered on the register of shareholders.

	2.		Request for purchase or sale of under unit shares with the Company

			The request for purchase or sale of under unit shares with the Company can only be made for shares falling short of 100 shares on and after May 6, 2004 (Thursday).

III.

Others

	1.		If you have a share certificate in the name other than yourself and if you have not completed the registration of transfer, you are cordially requested to fill the necessary information in the Share Transfer Registration Request and Shareholder Card, available at the place for replacement of share certificates stated in Item I-3 above, stamp the seal impression and submit them together with the share certificates to be replaced.

	2.		Please note that the replacement procedures cannot be cancelled once the replacement request is made.

	3.		If you have any questions regarding the replacement of share certificates or if the share certificates cannot be submitted because they have been lost, please contact the place for replacement of share certificates stated in Item I-3 above.

IV.		Use of Central Securities Depository System

		Shareholders may choose to use the Central Securities Depository System through securities companies, without replacement of share certificates explained above.

-3-

Use of this system eliminates the need to replace share certificates and so shortens the period during which share trading cannot be made.

The Central Securities Depository System is a system under which securities companies deposit share certificates entrusted by shareholders with the Japan Securities Depository Center, Inc. by obtaining the consents of shareholders (investors). Thereafter, the trading of stocks is made by book-entry transfer in the book accounts of Japan Securities Depository Center, Inc. and securities companies, without actually handling share certificates.

Please contact your securities companies for details about how to use the Central Securities Depository System.

-4-

April 27, 2004


FOR IMMEDIATE RELEASE		Canon Inc. 30-2, Shimomaruko 3-Chome, Ohta-ku, Tokyo 146-8501, Japan President & CEO: Fujio Mitarai Securities code: 7751

		Inquiries:
		Toshizo Tanaka Group Executive, Finance & Accounting Headquarters +81-3-3758-2111

Notice regarding change (dismissal)
of accounting auditors

TOKYO, April 27, 2004—Canon Inc. (“Canon”) announced that, following a decision reached today by its Board of Directors, the company would make a change to its accounting auditors, dismissing one of the two firms which, as certified public accountants, conduct accounting audits for Canon pursuant to Paragraph 1 of Article 193-2 of the Securities Exchange Law of Japan.

1. Reason for the dismissal of accounting auditor

AZSA & Co. has been conducting accounting audits on Canon’s consolidated financial statements since June 26, 2003. However, in March 2004, a former partner of Azsa & Co. was accused of and was arrested for involvement in the reporting of fraudulent financial statements. Canon’s management has been closely following the developments related to this incident but, because additional time will be required for a full investigation, Canon has decided not to retain the services of Azsa & Co. for the accounting audit of consolidated financial statements for fiscal 2004.

2. The name of the dismissed audit firm


Company name:		AZSA & Co.
Location of head office:		Azsa Center Building 1-2 Tsukudocho, Shinjuku-ku, Tokyo

3. Future Outlook

Shin Nihon & Co. will continue to conduct accounting audits for Canon pursuant to Paragraph 1 of Article 193-2 of the Securities Exchange Law of Japan.

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