Edgar Filing: CANON INC

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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 June 30, 2003

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
RESULTS FOR THE SECOND QUARTER AND THE FIRST HALF ENDED JUNE 30, 2003
Management Policy
Operating Results and Financial Conditions
CANON INC. AND SUBSIDIARIES

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 August 4, 2003
	By	/s/ Hiroyuki Yoshida (Signature)*
		Hiroyuki Yoshida Manager, Finance Department Canon Inc.

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

The following materials are included.

RESULTS FOR THE SECOND QUARTER AND THE FIRST HALF ENDED JUNE 30, 2003

RESULTS FOR THE SECOND QUARTER
AND THE FIRST HALF ENDED JUNE 30, 2003

July 31, 2003

CONSOLIDATED RESULTS FOR THE FIRST HALF


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

		Actual										Projected

		Six months		Six months				Six months		Year ended		Year ending
		ended June 30,		ended June 30,		Change(%)		ended June 30,		December 31,		December 31,		Change(%)
		2003		2002				2003		2002		2003

		(Unaudited)		(Unaudited)				(Unaudited)		(Audited)

Net sales		¥	1,535,588	¥	1,384,483	+	10.9	$	12,796,567	¥	2,940,128	¥	3,180,000	+	8.2
Operating profit			215,974		140,028	+	54.2		1,799,783		346,359		444,000	+	28.2
Income before income taxes			215,506		127,195	+	69.4		1,795,883		330,017		440,000	+	33.3
Net income			127,767		73,205	+	74.5		1,064,725		190,737		263,000	+	37.9

Earnings per share:
	— Basic	¥	145.55	¥	83.51	+	74.3	$	1.21	¥	217.56	¥	299.37	+	37.6
	— Diluted		143.99		82.46	+	74.6		1.20		214.80		—		—

Actual

As of

June 30,

Change(%)

June 30,

December 31,

2003

2002

2003

2002

(Unaudited)

(Audited)

Total assets

3,120,088

2,764,509

12.9

26,000,733

2,942,706

Stockholders’ equity

1,745,017

1,499,994

16.3

14,541,808

1,591,950


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 US$ = JPY 120, the approximate exchange rate on the Tokyo Foreign Exchange Marketas of June 30, 2003, solely for the convenience of the reader.

NON-CONSOLIDATED RESULTS FOR THE FIRST HALF


	(Millions of yen, except per share amounts)

	Actual						Actual		Projected

	Six months		Six months				Year ended		Year ending
	ended June 30,		ended June 30,		Change(%)		December 31,		December 31,		Change(%)
	2003		2002				2002		2003

	(Audited)		(Audited)				(Audited)

Net sales	¥	946,551	¥	808,357	+	17.1	¥	1,789,005	¥	1,977,000	+	10.5
Operating profit		154,391		89,851	+	71.8		237,193		—		—
Ordinary profit		164,293		93,698	+	75.3		240,983		325,000	+	34.9
Net income		128,775		58,479	+	120.2		144,185		227,000	+	57.4

Earnings per share	¥	146.69	¥	66.71	+	119.9	¥	164.46	¥	258.39	+	57.1
Dividend per share		15.00		12.50		—		30.00		30.00		—


	Actual						Actual

	As of		As of				As of
	June 30,		June 30,		Change(%)		December 31,
	2003		2002				2002

	(Audited)		(Audited)				(Audited)

Total assets	¥	1,923,322	¥	1,739,892	+	10.5	¥	1,848,137

Stockholders’ equity	¥	1,349,765	¥	1,163,384	+	16.0	¥	1,235,310

Canon Inc. Headquarter office

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

Phone: +81-3-3758-2111

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Management Policy

Under the corporate philosophy of kyosei—living and working together for the common good—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.

Management objectives

Aiming to increase corporate value, Canon Inc. launched Phase II of its Excellent Global Corporation Plan in 2001. This five-year management initiative, which will conclude in 2005, targets the fulfillment of the following four conditions with the aim of completing Canon’s transition to a truly excellent global corporation:

	1)		Securing the No. 1 position worldwide in all core business areas
	2)		Building up R&D strength capable of continually creating new businesses
	3)		Achieving a strong financial position
	4)		Fostering a corporate culture whereby all employees work ardently to achieve the company’s goals

Mid- to long-term management strategies

In order to achieve the objectives above, we are executing the following mid- and long-term management strategies:

Becoming No.1 in core businesses

Among our core businesses, we are already No. 1 worldwide in the areas of copying machines and laser beam printers. We intend, however, to create new business opportunities while also leading the way in expanding the color market through the active introduction of color copiers and color laser beam printers, developing the “print-on-demand” market with high-speed copiers, and promoting service businesses that offer document solutions.

With regard to digital cameras, we intend to leverage our expertise in optical and image-processing technologies to continuously launch competitive products, thereby supporting our goal of becoming a top manufacturer in terms of operational scale and profitability.

In the field of inkjet printers, we will continue to improve printing speeds while raising the level of photo-image quality. Moreover, from the second-half of this year, we will aggressively introduce digital cameras and printers that comply with an industry standard enabling any compliant printer to print directly from any compliant digital camera. In addition, by enhancing such products as photo-print software and paper, we will work to expand the home photo-printing market.

Canon is uniquely positioned as one of the few companies to possess world-leading technology for both cameras and photo-quality color printers. Fully utilizing this technological advantage and Canon’s high brand recognition, we are focusing our efforts on becoming No.1 in the home photo-printing market.

In the area of semiconductor production equipment, we have already introduced new products based on a new platform and aim to pursue the No. 1 position in the industry by continuously launching new products ahead of our competitors. Furthermore, in the aligner market for large LCD panels, where we maintain the No. 1 position, we will focus on product development in order to further expand our share.

Strengthening R&D

To become No. 1 in our core businesses and create new areas of business, we will concentrate our efforts on strengthening the company’s R&D capabilities. In addition to bolstering product “engine” technologies, platform technologies, and common base technologies, we will also enhance our overseas R&D operations.

In order to speedup product development and curtail costs, we aim to realize “prototype-less design” through the effective utilization of 3D-CAD systems, eliminating, to the extent possible, physical prototypes from the design process.

Achieving a strong financial position

We believe that the establishment of a healthy financial constitution is essential for the realization of continued corporate growth. While Canon Inc. has been actively strengthening its financial position, we

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will continue to promote cash-flow management to achieve financial strength befitting a truly excellent global company.

In addition to the management strategies outlined above, we will continue working to establish the “Three Regional Headquarters System” by enhancing the headquarters functions of Canon’s regional marketing headquarters in Europe and the Americas. We have also been actively reorganizing the Canon Group in Japan to achieve an optimal organization and bolster the competitive strength of each company, and will continue these initiatives. Overseas, we have reorganized our sales structure in South America and adopted a new streamlined sales organization in the EU that better accommodates market integration in the region. We are also keeping a close eye on developments in China and are strengthening our marketing structure there accordingly.

Other measures being undertaken to improve profitability for the Group include increasing the penetration and scale of worldwide production reform activities, optimizing production allocation based on a shift to China and Southeast Asia, reducing inventories and shortening production lead times through supply-chain management, and accelerating the in-house production of key components. Through these activities we will target growth for the Canon Group and seek to heighten Canon’s corporate value as represented by such financial indicators as ROA (Return on Assets) and ROE (Return on Equity).

Business challenges and countermeasures

One of the challenges that Canon faces is the establishment of stable business management that offers resilience against the influence of exchange rate fluctuations. With an overseas sales ratio of more than 70%, we are heavily exposed to this risk. For the short term, we will work to alleviate the impact of changes in exchange rates by shifting production overseas and by increasing the proportion of locally procured parts.

For the long term, we will establish product development operations in the United States and Europe, enabling each region—Japan, the Americas and Europe—to develop, produce and export its own products all over the world. Through the realization of international diversification across our production and marketing operations, we believe that the impact of exchange rate fluctuations can be minimized.

We also view environmental concerns as a management issue of extreme importance. From the product development stage through to production, sales, use, recovery and recycling, we focus our efforts on creating environmentally conscious products designed with energy savings, resource conservation, and the elimination of harmful substances in mind. In addition to the development of recycling systems and expansion of green procurement, we actively disclose environmental information and support local environmental activities.

Basic attitude in regard to corporate governance and state of implementation of related measures

Canon, recognizing the extreme importance of bolstering management supervision functions aimed at increasing management transparency and achieving management objectives, has been implementing various measures to improve its corporate governance. In this manner, we are striving to continuously elevate Canon’s corporate value.

State of implementation of measures in regard to corporate governance

In addition to our board of directors and auditing system, Canon Inc. has also created an original internal auditing system for the further development of its corporate governance.

There are currently 24 directors on the company’s board. In order to realize a more streamlined and efficient management decision-making process, Canon does not adopt the outside director system. Under the current system, as a general rule, all matters of importance are actively discussed and decided at management meetings attended by all directors. Moreover, various cross-company management advisory committees have been established to address important management themes. Each committee serves to accelerate and rationalize the decision-making process while supplementing the business-division system and performing a checking function.

Canon’s board of corporate auditors consists of four-members, two of which are outside corporate auditors. In accordance with the board of corporate auditors’ auditing policies and their assigned duties, the members attend board of director meetings, listen to business reports from the directors and others, carefully examine documents related to important decisions, and conduct strict audits of the company’s business and its property.

Furthermore, the Corporate Audit Center, which serves as an internal auditing division, conducts inspections covering such areas as compliance, risk management and internal control systems, and then

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provides assessments and proposals. The various relevant administrative divisions also work very closely with the Corporate Audit Center to inspect such areas as quality, environment issues, information security and physical security.

The company has also established a code of conduct, which calls on all Canon group employees to strictly observe all laws as well as company rules and regulations. This Canon Code of Conduct Handbook, which is available in nine different languages, has been distributed to all employees to further raise awareness of compliance throughout the entire Canon group. A special administrative division has also been established to raise the effectiveness of these efforts.

Canon has made a practice of keeping shareholders and other investors abreast of management conditions through corporate policy briefings, quarterly announcements of operating results, and enhancement of the company’s Web site, and will continue to actively promote accurate and timely disclosure of information.

Through these measures, Canon will continue to strengthen corporate governance practices, based on zones of management with a strong sense of mission and ethics.

Outline of relationship between the company and outside corporate auditors in regard to personal, capital, business relationships, and other interests.

Currently, there are no special interests between the company and its two outside corporate auditors.

State of implementation of measures intended to improve and enhance the company’s corporate governance over the past year

To realize a management structure, capable of responding rapidly to changes in the business climate, Canon reduced the term of office for company directors from two years to one.

In order to meet calls to reinforce the independence of the accounting firm, internal regulations related to prior approval policies and procedures for both auditing and non-auditing operations were established in May of 2003. Under the system introduced, the board of corporate auditors must approve the content and related amount of contracts between the accounting firm and the company before they are entered into.

Basic policy in regard to profit distribution

With regard to profit distribution, Canon recognizes its dividend policy as one of the company’s most important management issues. For fiscal 2002, Canon increased its annual dividend from 25 yen per share in fiscal 2001, to 30 yen. This reflects the strong results we achieved for the year and appreciation for continued shareholder support. We intend to maintain stable dividend payments in the future, contingent upon the combination of consolidated financial performance, as well as capital requirements to fund future business expansion and improve profitability.

As for internal reserves, such funds will be used to support investment in current business expansion and new business cultivation, and repay debt in order to strengthen the company’s financial structure.

Attitude in regard to share trading unit

Currently, one trading unit, or round lot, for Canon’s stock on the Tokyo Stock Exchange consists of 1,000 shares. The Tokyo Stock Exchange has requested that some listed companies with a high stock price reduce the number of shares making up a trading unit with the aim of encouraging participation in the market by individual investors. While we appreciate that reduced-quantity round lots can increase liquidity and attract new investors, it is the company’s basic policy that the issue should be assessed in a prudent manner in accordance with future market demands. As we believe that Canon’s stock now enjoys a reasonable level of liquidity, the related costs of smaller round lot investment would not be justified at this time.

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Operating Results and Financial Conditions

2003 First Half in Review

Looking back at the global economy in the first half of 2003, the U.S. economy showed sluggish growth in consumer spending and capital investment although signs of an economic upturn appeared during the latter half of the six-month period. The economies of Europe were relatively flat due to restrained exports resulting from the stagnant U.S. economy and the appreciation of the euro, while Asian economies achieved only moderate growth due to the adverse effects caused by the spread of Severe Acute Respiratory Syndrome (SARS). The Japanese economy remained flat, showing no signs of an upward trend in consumer spending and capital investment.

As for the markets in which the Canon Group operates, the digital camera market continued to show robust growth while digital copying machines and computer peripherals struggled amid severe price competition. In the field of optical equipment, the market for semiconductor-production equipment remained sluggish while the market for projection aligners used in the production of liquid crystal displays (LCDs) expanded, fueled by increased demand for LCD televisions. The average value of the yen for the half was ¥118.70 to the U.S. dollar and ¥131.46 to the euro, representing a year-on-year increase of 9% against the dollar, and decrease of 11% against the euro.

Amid these conditions, Canon’s consolidated net sales for the first half increased by 10.9% from the year-ago period to ¥1,535.6 billion (U.S.$12,797 million), boosted by a significant rise in sales of digital cameras, along with a recovery in sales of semiconductor-production equipment and laser beam printers, which had suffered a large drop in the first half of the previous year due to inventory adjustment by our OEM partner. On a half-year basis, net income recorded an all-time high of ¥127.8 billion (U.S.$1,065 million), a year-on-year increase of 74.5%. The gross profit ratio for the half was 50.5%, surpassing the 50% mark for the first time ever, representing a 3.5% improvement from the 47.0% mark achieved a year ago. This achievement was made possible through the company’s R&D reforms, which have supported the timely launch of competitive new products, and cost savings realized through sustained production reforms and the overseas shifting of production. Selling, general and administrative expenses rose 9.7% year on year for the first half which was within the increase of sales, as R&D expenditures increased by ¥15.1 billion (U.S.$126 million) to ¥125.7 billion (U.S.$1,048 million) along with increases in advertising and sales-promotion spending. Consequently, operating profit in the first half totaled ¥216.0 billion (U.S.$1,800 million), a substantial increase of 54.2%. Other income improved by ¥12.4 billion (U.S.$103 million) through reduced currency exchange losses. As a result, income before income taxes in the first half totaled ¥215.5 billion (U.S.$1,796 million), a year-on-year increase of 69.4%. At the end of March 2003, an amendment to the Japanese tax regulations was announced that would introduce an added value component and capital component standard to a portion of enterprise tax. As a result, the standard Japanese income tax rate will be reduced from the 2005 fiscal year. Although tax expenses increased temporarily following a reassessment of deferred tax assets and liabilities as a result of this amendment, with the increased tax credit for R&D expenses as well as the solid performance by the company’s overseas subsidiaries, the effective tax rate during the half decreased by 2.1% compared with the previous year. Consequently, net income in the first half of 2003 totaled ¥127.8 billion (U.S.$1,065 million), a year-on-year increase of 74.5%.

Basic earnings per share for the first half was ¥145.55 (U.S.$1.21), a year-on-year increase of ¥62.04 (U.S.$0.52).

Results by Product Segment

In the business machine segment, Canon’s powerful imageRUNNER(iR)-series lineup of digital networked black-and-white multifunction copying machines realized healthy sales growth worldwide. In particular, the low-end iR 1600 series continued to record strong sales during the term. Among digital networked color copying machines, the iR C3200/iR C3200N, released domestically at the end of last year, has been well received in both Japan and abroad, which also contributed to increased sales of office imaging products. Overall, sales of office imaging products for the half realized a year-on-year increase of 3.0%. In the field of computer peripherals, sales of laser beam printers, which had dropped significantly during the same period of the previous year due to inventory adjustment by our OEM partner, showed robust growth as a result of a recovery in orders. Sales of inkjet printers, however, dipped slightly despite continued favorable sales of the i550 and i850 models, and strong performances by such new products as the MultiPASS MP700/MP730 multifunction inkjet systems and the portable i70 color printer, reflecting stagnant market demand for personal computers and the effects of severe price competition. As a result, sales of computer peripherals in the first half increased by 11.5%. Sales of business information products, including computers, micrographics and calculators, decreased by 18.3% due to declining personal computer sales. Consequently, first half sales of business machines overall totaled ¥1,128.0 billion (U.S.$9,400 million), a

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5.3% increase year on year. In addition to cost-cutting measures and the introduction of new price-competitive products, which contributed to a 4.4% improvement in the operating profit margin, a substantial increase in sales volume for laser beam printers boosted first-half operating profit by 33.5% year on year to ¥237.4 billion (U.S.$1,979 million). Beginning from the first quarter, Canon updated the breakdown of product categories comprising the business machines segment to better reflect present sales conditions. Accordingly, previous-year sales for each category have been restated to reflect the changes.

Within the camera segment, amid the continued strong demand for digital models worldwide, Canon launched in the first half of last year several new compact digital cameras to strengthen its line-up, including five new PowerShot-series models and two new Digital ELPH-series models, which have contributed to a significant increase in sales. The company’s digital SLR models also achieved strong sales growth, namely the EOS 10D, which was introduced as a more affordable model. Sales of conventional film cameras, however, continued to slip during the quarter amid the increasing popularity of digital models and price competition. Sales of digital video camcorders were healthy with the introduction of such new products as the mega-pixel model FV M10, which contributed to the realization of a strong product lineup. As a result, camera sales overall continued to show strong growth, reaching ¥283.8 billion (U.S.$2,365 million) for the first half, an increase of 34.3% from the year-ago period. Operating profit for the camera segment appreciably advanced 77.5% to ¥49.8 billion (U.S.$415 million), attributable to the rapid growth in sales of digital cameras and digital video camcorders, along with the effects of cost savings initiatives, which resulted in a 4.2% improvement in the operating income ratio.

In the optical and other products segment, despite the continued restrained capital spending for semiconductor production equipment by memory device manufacturers during the term, sales increased by 22.1% to ¥123.8 billion (U.S.$1,032 million), boosted by a substantial increase in sales of aligners for the production of LCDs, reflecting the shift from CRT computer displays to LCD monitors, along with the expansion of the LCD television market. Optical and other products, however, suffered an operating loss of ¥1.2 billion (U.S.$10 million) for the half, a slight improvement from the ¥8.5 billion operating loss recorded for the corresponding period of the previous year.

Cash Flows

In the first half of 2003, Canon maintained cash flows from operating activities of ¥228.3 billion (U.S.$1,903 million), a year-on-year increase of ¥25.4 billion (U.S.$212 million) for the period, reflecting substantial net income growth, as well as an increase in depreciation. Capital expenditure totaled ¥109.8 billion (U.S.$915 million), which was used mainly to expand production capabilities in both domestic and overseas regions. Cash flows from investing activities totaled ¥111.3 billion (U.S.$928 million), including a ¥12.7 billion (U.S.$106 million) outlay for the acquisition of Sumitomo Metal System Solutions Co. Ltd., now Canon System Solutions Inc. As a result, free cash flow, or cash flow from operating activities minus cash flow from investing activities, totaled positive ¥117.0 billion (U.S.$975 million).

Cash flows from financing activities recorded an outlay of ¥46.7 billion (U.S.$389 million), mainly resulting from active efforts to repay short-term and long-term loans toward the goal of improving the company’s financial position. Consequently, cash and cash equivalents, which totaled ¥591.1 billion (U.S.$4,926 million), remained at a high level, representing a ¥69.9 billion (U.S.$582 million) increase from the end of the previous year.

Non-consolidated Results and Dividend

Canon Inc.’s non-consolidated net sales during the first half increased year on year by 17.1% to ¥946.6 billion (US$7,888 million), and ordinary profit also grew by 75.3% to ¥164.3 billion (US$1,369 million). Non-consolidated net income leaped 120.2% to ¥128.8 billion (US$1,073 million) owing to a temporary gain realized through exemption from the obligation to pay benefits for future employee services related to the substitutional portion of the Employees’ Pension Fund.

The Board of Directors is planning to increase the interim dividend by ¥2.50 (US$0.02) on a year-on-year basis, to ¥15.00 (US$0.13) per share.

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Outlook

Regarding the outlook for the global economy in the third quarter and thereafter, the U.S. economy is likely to realize a moderate recovery as personal consumption is expected to continue growing and business investment to gradually pick up. The Japanese economy is expected to remain sluggish owing to flat consumer spending and capital investment, and a decrease in exports. The economies of Europe will also probably show stagnant growth due to decreased exports influenced by the appreciation of the euro. In China and Southeast Asia, despite the effects of SARS, exports are expected to make a recovery and the economy will likely show steady growth.

In the businesses in which Canon is involved, the digital camera market is expected to continue enjoying rapid growth and stable demand is projected for full-color copying machines and laser beam printers. Within the semiconductor-production equipment market, a recovery in capital investment by memory device manufacturers is taking longer than was originally anticipated and orders are now expected to show signs of a turnaround sometime after next year.

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 weaker against the euro than during the previous year.

Upon considering the current market and currency exchange environments, the company has revised upward its forecasts for the 2003 fiscal year and now anticipates consolidated net sales of ¥3,180.0 billion (U.S.$26,500 million), consolidated income before income taxes of ¥440.0 billion (U.S.$3,667 million), and consolidated net income of ¥263.0 billion (U.S.$2,192 million). The company also projects non-consolidated net sales of ¥1,977.0 billion (U.S.$16,475 million), non-consolidated ordinary profit of ¥325.0 billion (U.S.$2,708 million), and non-consolidated net income of ¥227.0 billion (U.S.$1,892 million). These forecasts assume currency exchange rates of ¥118.00 to the U.S. dollar and ¥132.00 to the euro for the remainder of 2003.

Consolidated Outlook
Fiscal year


	Millions of yen

	Year ending
	December 31, 2003						Year ended
					Change		December 31, 2002		Change (%)
	Previous Outlook (A)		Revised Outlook (B)		(B - A)		Results (C)		(B / C)

Net sales	¥	3,152,000	¥	3,180,000	¥	28,000	¥	2,940,128	+	8.2	%
Income before income taxes		410,000		440,000		30,000		330,017	+	33.3	%
Net income		240,000		263,000		23,000		190,737	+	37.9	%


Non-consolidated Outlook Fiscal year

	Millions of yen

	Year ending
	December 31, 2003						Year ended
					Change		December 31, 2002		Change (%)
	Previous Outlook (A)		Revised Outlook (B)		(B - A)		Results (C)		(B / C)

Net sales	¥	1,947,000	¥	1,977,000	¥	30,000	¥	1,789,005	+	10.5	%
Ordinary profit		305,000		325,000		20,000		240,983	+	34.9	%
Net income		220,000		227,000		7,000		144,185	+	57.4	%

These reports contain forward-looking statements which 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 any forward-looking statements. Further, certain forward-looking statements are based upon assumptions of future events which may not prove to be accurate. (Cautionary Statements for Purposes of the Safe Harbor Provisions of the United States Private Securities Litigation Reform Act of 1995.)

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CANON INC. AND SUBSIDIARIES

CONSOLIDATED

GROUP POSITION

NUMBER OF GROUP COMPANIES


	June 30, 2003		December 31, 2002		Change

Subsidiaries		202		195		7
Affiliated Companies		20		19		1

Total		222		214		8

GROUP STRUCTURE AND MAJOR GROUP COMPANIES

(CANON CHART)

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CANON INC. AND SUBSIDIARIES

CONSOLIDATED

1.		CONSOLIDATED STATEMENTS OF INCOME

		Results for the second quarter

Thousands of

Millions of yen

U.S. dollars

Three months

ended

June 30, 2003

June 30, 2002

Change(%)

June 30, 2003

(Unaudited)

Net sales

804,027

733,392

+9.6

6,700,225

Cost of sales

399,109

389,717

3,325,908

Gross profit

404,918

343,675

+17.8

3,374,317

Selling, general and administrative expenses

306,351

268,198

2,552,925

Operating profit

98,567

75,477

+30.6

821,392

Other income (deductions):

Interest and dividend income

2,434

2,248

20,283

Interest expense

(1,404

)

(1,698

)

(11,700

)

Other, net

(1,290

)

(10,849

)

(10,750

)

(260

)

(10,299

)

(2,167

)

Income before income taxes

98,307

65,178

+50.8

819,225

Income taxes

37,585

22,320

313,208

Income before minority interests

60,722

42,858

506,017

Minority interests

4,556

1,307

37,967

Net income

56,166

41,551

+35.2

468,050


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 June 30, 2003 and 2002 were JPY 75,969 million (U.S.$633,075 thousand) and JPY 13,470 million, respectively.

Results for the first half


											Thousands of
			Millions of yen								U.S. dollars			Millions of yen

			Six months			Six months					Six months			Year ended
			ended			ended					ended			December 31,
			June 30, 2003			June 30, 2002			Change(%)		June 30, 2003			2002

			(Unaudited)			(Unaudited)					(Unaudited)			(Audited)
Net sales			¥	1,535,588		¥	1,384,483			+10.9	$	12,796,567		¥	2,940,128
Cost of sales				759,714			734,221					6,330,950			1,540,097

		Gross profit		775,874			650,262			+19.3		6,465,617			1,400,031
Selling, general and administrative expenses				559,900			510,234					4,665,834			1,053,672

		Operating profit		215,974			140,028			+54.2		1,799,783			346,359
Other income (deductions):
	Interest and dividend income			4,630			4,734					38,583			9,198
	Interest expense			(2,650	)		(3,482	)				(22,083	)		(6,788	)
	Other, net			(2,448	)		(14,085	)				(20,400	)		(18,752	)

				(468	)		(12,833	)				(3,900	)		(16,342	)

		Income before income taxes		215,506			127,195			+69.4		1,795,883			330,017
Income taxes				82,801			51,539					690,008			134,703

		Income before minority interests		132,705			75,656					1,105,875			195,314
Minority interests				4,938			2,451					41,150			4,577

		Net income	¥	127,767		¥	73,205			+74.5	$	1,064,725		¥	190,737


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 six months ended June 30, 2003 and 2002 were JPY 167,590 million (U.S.$1,396,583 thousand) and JPY 53,370 million, respectively.

- 9 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

2.		DETAILS OF SALES

		Results for the second quarter

Thousands of

Millions of yen

U.S. dollars

Three months

ended

June 30, 2003

June 30, 2002

Change(%)

June 30, 2003

(Unaudited)

Sales by product

Business machines:

Office imaging products

278,302

265,733

4.7

2,319,183

Computer peripherals

267,663

252,030

6.2

2,230,525

Business information products

30,518

36,561

16.5

254,317

576,483

554,324

4.0

4,804,025

Cameras

166,257

125,681

32.3

1,385,475

Optical and other products

61,287

53,387

14.8

510,725

Total

804,027

733,392

9.6

6,700,225

Thousands of

Millions of yen

U.S. dollars

Three months

ended

June 30, 2003

June 30, 2002

Change(%)

June 30, 2003

(Unaudited)

Sales by region

Japan

197,941

182,750

8.3

1,649,508

Overseas:

Americas

268,268

245,711

9.2

2,235,567

Europe

248,108

217,865

13.9

2,067,567

Other areas

89,710

87,066

3.0

747,583

606,086

550,642

10.1

5,050,717

Total

804,027

733,392

9.6

6,700,225

Results for the first half

Thousands of

Millions of yen

U.S. dollars

Millions of yen

Six months

Year ended

ended

December 31,

June 30, 2003

June 30, 2002

Change(%)

June 30, 2003

2002

(Unaudited)

(Audited)

Sales by product

Business machines:

Office imaging products

532,623

516,952

3.0

4,438,525

1,023,131

Computer peripherals

531,262

476,288

11.5

4,427,183

1,055,956

Business information products

64,073

78,443

18.3

533,942

147,108

1,127,958

1,071,683

5.3

9,399,650

2,226,195

Cameras

283,801

211,392

34.3

2,365,009

485,778

Optical and other products

123,829

101,408

22.1

1,031,908

228,155

Total

1,535,588

1,384,483

10.9

12,796,567

2,940,128

Thousands of

Millions of yen

U.S. dollars

Millions of yen

Six months

Year ended

ended

December 31,

June 30, 2003

June 30, 2002

Change(%)

June 30, 2003

2002

(Unaudited)

(Audited)

Sales by region

Japan

383,919

361,138

6.3

3,199,325

732,551

Overseas:

Americas

511,088

462,772

10.4

4,259,067

1,010,166

Europe

464,519

406,617

14.2

3,870,992

857,167

Other areas

176,062

153,956

14.4

1,467,183

340,244

1,151,669

1,023,345

12.5

9,597,242

2,207,577

Total

1,535,588

1,384,483

10.9

12,796,567

2,940,128


Notes:	Effective 1st quarter of fiscal 2003, Canon has revised the product categories contained within the Business machines segment. The new categories are: “Office imaging products,” “Computer peripherals,” and “Business information products.” Accordingly, previous-year sales for each category have been restated in accordance with the changes.

	1.	The primary products included in each of the product segments are as follows:
		Business machines:
			Office imaging products: 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 / 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

- 10 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

3.		SEGMENT INFORMATION BY PRODUCT

		Result for the second quarter

Thousands of

Millions of yen

U.S. dollars

Three months

ended

June 30, 2003

June 30, 2002

Change(%)

June 30, 2003

(Unaudited)

Business machines

Net sales:

Unaffiliated customers

576,483

554,324

+4.0

4,804,025

Intersegment

—

Total

576,483

554,324

+4.0

4,804,025

Operating cost and expenses

462,432

459,044

+0.7

3,853,600

Operating profit

114,051

95,280

+19.7

950,425

Cameras

Net sales:

Unaffiliated customers

166,257

125,681

+32.3

1,385,475

Intersegment

—

Total

166,257

125,681

+32.3

1,385,475

Operating cost and expenses

138,131

108,322

+27.5

1,151,092

Operating profit

28,126

17,359

+62.0

234,383

Optical and other products

Net sales:

Unaffiliated customers

61,287

53,387

+14.8

510,725

Intersegment

39,327

34,485

+14.0

327,725

Total

100,614

87,872

+14.5

838,450

Operating cost and expenses

103,581

91,908

+12.7

863,175

Operating profit

(2,967

)

(4,036

)

—

(24,725

)

Corporate and Eliminations

Net sales:

Unaffiliated customers

—

Intersegment

(39,327

)

(34,485

)

—

(327,725

)

Total

(39,327

)

(34,485

)

—

(327,725

)

Operating cost and expenses

1,316

(1,359

)

—

10,966

Operating profit

(40,643

)

(33,126

)

—

(338,691

)

Consolidated

Net sales:

Unaffiliated customers

804,027

733,392

+9.6

6,700,225

Intersegment

—

Total

804,027

733,392

+9.6

6,700,225

Operating cost and expenses

705,460

657,915

+7.2

5,878,833

Operating profit

98,567

75,477

+30.6

821,392


Note:		General corporate expenses of JPY 40,652 million (U.S.$338,767 thousand) and JPY 33,143 million in the three months ended June 30, 2003 and 2002, respectively, are included in “Corporate and Eliminations.”

- 11 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

Result for the first half


											Thousands of
			Millions of yen								U.S. dollars			Millions of yen

			Six months			Six months					Six months			Year ended
			ended			ended					ended			December 31,
			June 30, 2003			June 30, 2002			Change(%)		June 30, 2003			2002

			(Unaudited)			(Unaudited)					(Unaudited)			(Audited)
Business machines
Net sales:
	Unaffiliated customers		¥	1,127,958		¥	1,071,683			+5.3	$	9,399,650		¥	2,226,195
	Intersegment			—			—			—		—			—

		Total		1,127,958			1,071,683			+5.3		9,399,650			2,226,195

Operating cost and expenses				890,537			893,832			-0.4		7,421,142			1,815,179

Operating profit				237,421			177,851			+33.5		1,978,508			411,016

Cameras
Net sales:
	Unaffiliated customers		¥	283,801		¥	211,392			+34.3	$	2,365,008		¥	485,778
	Intersegment			—			—			—		—			—

		Total		283,801			211,392			+34.3		2,365,008			485,778

Operating cost and expenses				234,007			183,337			+27.6		1,950,058			415,488

Operating profit				49,794			28,055			+77.5		414,950			70,290

Optical and other products
Net sales:
	Unaffiliated customers		¥	123,829		¥	101,408			+22.1	$	1,031,909		¥	228,155
	Intersegment			74,037			63,259			+17.0		616,975			139,608

		Total		197,866			164,667			+20.2		1,648,884			367,763

Operating cost and expenses				199,019			173,158			+14.9		1,658,492			379,415

Operating profit				(1,153	)		(8,491	)		—		(9,608	)		(11,652	)

Corporate and Eliminations
Net sales:
	Unaffiliated customers		¥	—		¥	—			—	$	—		¥	—
	Intersegment			(74,037	)		(63,259	)		—		(616,975	)		(139,608	)

		Total		(74,037	)		(63,259	)		—		(616,975	)		(139,608	)

Operating cost and expenses				(3,949	)		(5,872	)		—		(32,908	)		(16,313	)

Operating profit				(70,088	)		(57,387	)		—		(584,067	)		(123,295	)

Consolidated
Net sales:
	Unaffiliated customers		¥	1,535,588		¥	1,384,483			+10.9	$	12,796,567		¥	2,940,128
	Intersegment			—			—			—		—			—

		Total		1,535,588			1,384,483			+10.9		12,796,567			2,940,128

Operating cost and expenses				1,319,614			1,244,455			+6.0		10,996,784			2,593,769

Operating profit				215,974			140,028			+54.2		1,799,783			346,359


Note:		General corporate expenses of JPY 70,108 million (U.S.$584,233 thousand) and JPY 57,366 million in the six months ended June 30, 2003 and 2002, respectively, are included in “Corporate and Eliminations.”

- 12 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

4.		SEGMENT INFORMATION BY GEOGRAPHIC AREA

		Result for the first half


											Thousands of
			Millions of yen								U.S. dollars			Millions of yen

			Six months			Six months					Six months			Year ended
			ended			ended					ended			December 31,
			June 30, 2003			June 30, 2002			Change(%)		June 30, 2003			2002

			(Unaudited)			(Unaudited)					(Unaudited)			(Audited)
Japan
Net sales:
	Unaffiliated customers		¥	413,551		¥	383,068			+8.0	$	3,446,258		¥	789,066
	Intersegment			779,689			666,437			+17.0		6,497,409			1,475,091

		Total		1,193,240			1,049,505			+13.7		9,943,667			2,264,157

Operating cost and expenses				951,009			880,659			+8.0		7,925,075			1,867,817

Operating profit				242,231			168,846			+43.5		2,018,592			396,340

Americas
Net sales:
	Unaffiliated customers		¥	511,603		¥	461,538			+10.8	$	4,263,358		¥	1,007,572
	Intersegment			4,210			6,127			-31.3		35,084			9,791

		Total		515,813			467,665			+10.3		4,298,442			1,017,363

Operating cost and expenses				485,557			447,457			+8.5		4,046,309			969,542

Operating profit				30,256			20,208			+49.7		252,133			47,821

Europe
Net sales:
	Unaffiliated customers		¥	463,973		¥	403,829			+14.9	$	3,866,442		¥	852,931
	Intersegment			1,497			2,464			-39.2		12,475			4,639

		Total		465,470			406,293			+14.6		3,878,917			857,570

Operating cost and expenses				451,126			399,036			+13.1		3,759,384			836,341

Operating profit				14,344			7,257			+97.7		119,533			21,229

Others
Net sales:
	Unaffiliated customers		¥	146,461		¥	136,048			+7.7	$	1,220,509		¥	290,559
	Intersegment			221,145			193,561			+14.3		1,842,874			426,914

		Total		367,606			329,609			+11.5		3,063,383			717,473

Operating cost and expenses				358,877			322,431			+11.3		2,990,641			699,420

Operating profit				8,729			7,178			+21.6		72,742			18,053

Corporate and Eliminations
Net sales:
	Unaffiliated customers		¥	—		¥	—			—	$	—		¥	—
	Intersegment			(1,006,541	)		(868,589	)		—		(8,387,842	)		(1,916,435	)

		Total		(1,006,541	)		(868,589	)		—		(8,387,842	)		(1,916,435	)

Operating cost and expenses				(926,955	)		(805,128	)		—		(7,724,625	)		(1,779,351	)

Operating profit				(79,586	)		(63,461	)		—		(663,217	)		(137,084	)

Consolidated
Net sales:
	Unaffiliated customers		¥	1,535,588		¥	1,384,483			+10.9	$	12,796,567		¥	2,940,128
	Intersegment			—			—			—		—			—

		Total		1,535,588			1,384,483			+10.9		12,796,567			2,940,128

Operating cost and expenses				1,319,614			1,244,455			+6.0		10,996,784			2,593,769

Operating profit				215,974			140,028			+54.2		1,799,783			346,359


Note:		General corporate expenses of JPY 70,108 million (U.S.$584,233 thousand) and JPY 57,366 million for the six months ended June 30, 2003 and 2002, respectively, are included in “Corporate and Eliminations.”

- 13 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

CONSOLIDATED BALANCE SHEETS


													Thousands of
				Millions of yen									U.S. dollars			Millions of yen

				As of			As of						As of			As of
				June 30, 2003			Dec. 31, 2002			Change			June 30, 2003			June 30, 2002

				(Unaudited)			(Audited)						(Unaudited)			(Unaudited)
ASSETS
	Current assets:
		Cash and cash equivalents		¥	591,130		¥	521,271		¥	69,859		$	4,926,083		¥	445,206
		Marketable securities			1,414			7,255			(5,841	)		11,783			7,258
		Trade receivables, less allowance			497,195			498,587			(1,392	)		4,143,292			434,733
		Inventories			475,914			432,251			43,663			3,965,950			427,383
		Prepaid expenses and other current assets			266,505			245,610			20,895			2,220,875			226,140

			Total current assets		1,832,158			1,704,974			127,184			15,267,983			1,540,720
	Noncurrent receivables				17,089			20,568			(3,479	)		142,408			20,392
	Investments				66,117			64,037			2,080			550,975			67,348
	Net property, plant and equipment				855,176			830,304			24,872			7,126,467			830,378
	Other assets				349,548			322,823			26,725			2,912,900			305,671

			Total assets	¥	3,120,088		¥	2,942,706		¥	177,382		$	26,000,733		¥	2,764,509

LIABILITIES AND STOCKHOLDERS’ EQUITY
	Current liabilities:
		Short-term loans		¥	59,428		¥	66,754		¥	(7,326	)	$	495,233		¥	103,847
		Trade payables			419,687			408,464			11,223			3,497,392			382,484
		Income taxes			76,153			80,169			(4,016	)		634,608			41,371
		Accrued expenses			173,417			154,621			18,796			1,445,142			141,935
		Other current liabilities			99,310			91,832			7,478			827,583			77,257

			Total current liabilities		827,995			801,840			26,155			6,899,958			746,894
	Long-term debt, excluding current installments				86,188			81,349			4,839			718,233			87,136
	Accrued pension and severance cost				271,805			285,129			(13,324	)		2,265,042			251,341
	Other noncurrent liabilities				30,735			26,193			4,542			256,125			19,729

			Total liabilities		1,216,723			1,194,511			22,212			10,139,358			1,105,100

	Minority interests				158,348			156,245			2,103			1,319,567			159,415
	Stockholders’ equity:
		Common stock			167,883			167,242			641			1,399,025			165,651
		Additional paid-in capital			394,846			394,088			758			3,290,383			393,871
		Retained earnings			1,315,655			1,203,248			112,407			10,963,792			1,096,678
		Accumulated other comprehensive income (loss)			(126,644	)		(166,467	)		39,823			(1,055,367	)		(155,003	)
		Treasury stock			(6,723	)		(6,161	)		(562	)		(56,025	)		(1,203	)

			Total stockholders’ equity		1,745,017			1,591,950			153,067			14,541,808			1,499,994

			Total liabilities and stockholders’ equity	¥	3,120,088		¥	2,942,706		¥	177,382		$	26,000,733		¥	2,764,509


													Thousands of
				Millions of yen									U.S. dollars			Millions of yen

				As of			As of						As of			As of
				June 30, 2003			Dec. 31, 2002						June 30, 2003			June 30, 2002

				(Unaudited)			(Audited)						(Unaudited)			(Unaudited)

Allowance for doubtful receivables				¥	15,113		¥	12,031					$	125,942		¥	11,602
Accumulated depreciation					1,104,216			1,077,694						9,201,800			1,048,952
Accumulated other comprehensive income (loss):
	Foreign currency translation adjustments				(44,574	)		(68,524	)					(371,450	)		(76,006	)
	Net unrealized gains (losses) on securities				54			(1,168	)					450			7
	Minimum pension liability adjustments				(80,047	)		(96,441	)					(667,059	)		(80,324	)
	Net gains (losses) on derivative financial instruments				(2,077	)		(334	)					(17,308	)		1,320

-14-

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

6. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS


		Millions of yen						Thousands of			Millions of yen
								U.S. dollars

		Six months			Six months			Six months			Year ended
		ended			ended			ended			December 31,
		June 30, 2003			June 30, 2002			June 30, 2003			2002

		(Unaudited)			(Unaudited)			(Unaudited)			(Audited)
Balance at beginning of period		¥	1,203,248		¥	1,036,178		$	10,027,067		¥	1,036,178
	Net income		127,767			73,205			1,064,725			190,737
	Cash dividends		(15,360	)		(12,705	)		(128,000	)		(23,663	)
	Other		—			—			—			(4	)

Balance at end of period		¥	1,315,655		¥	1,096,678		$	10,963,792		¥	1,203,248

7. CONSOLIDATED STATEMENTS OF CASH FLOWS


			Millions of yen						Thousands of			Millions of yen
									U.S. dollars

			Six months			Six months			Six months			Year ended
			ended			ended			ended			December 31,
			June 30, 2003			June 30, 2002			June 30, 2003			2002

			(Unaudited)			(Unaudited)			(Unaudited)			(Audited)
Net income			¥	127,767		¥	73,205		$	1,064,725		¥	190,737
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			85,094			71,945			709,117			165,260
	Loss on disposal of property, plant and equipment			7,041			6,609			58,675			13,137
	Deferred income taxes			555			938			4,625			(1,788	)
	Decrease (increase) in trade receivables			22,753			8,357			189,608			(47,077	)
	Decrease (increase) in inventories			(28,274	)		11,237			(235,617	)		14,029
	Increase in trade payables			7,794			38,323			64,950			64,040
	Increase (decrease) in income taxes			(4,534	)		(23,583	)		(37,783	)		14,935
	Increase in accrued expenses			8,632			2,794			71,933			12,901
	Other, net			1,472			13,092			12,267			22,776

		Net cash provided by operating activities		228,300			202,917			1,902,500			448,950
Cash flows from investing activities:
	Capital expenditure			(109,793	)		(104,906	)		(914,942	)		(198,702	)
	Proceeds from sale of property, plant and equipment			6,025			7,436			50,208			11,971
	Payment for purchase of marketable securities			(573	)		(3,196	)		(4,775	)		(2,751	)
	Proceeds from sale of marketable securities			6,655			959			55,458			1,099
	Payment for purchase of investments			(20,270	)		(22,379	)		(168,916	)		(30,331	)
	Other			6,628			(8,580	)		55,234			(11,506	)

		Net cash used in investing activities		(111,328	)		(130,666	)		(927,733	)		(230,220	)
Cash flows from financing activities:
	Proceeds from long-term debt			1,154			3,197			9,617			10,609
	Repayment of long-term debt			(11,168	)		(10,877	)		(93,067	)		(60,690	)
	Decrease in short-term loans			(19,959	)		(97,148	)		(166,325	)		(101,125	)
	Dividends paid			(15,360	)		(12,705	)		(128,000	)		(23,663	)
	Other			(1,355	)		(2,400	)		(11,292	)		(8,845	)

		Net cash used in financing activities		(46,688	)		(119,933	)		(389,067	)		(183,714	)
Effect of exchange rate changes on cash and cash equivalents				(425	)		(13,346	)		(3,542	)		(19,979	)

Net change in cash and cash equivalents				69,859			(61,028	)		582,158			15,037
Cash and cash equivalents at beginning of period				521,271			506,234			4,343,925			506,234

Cash and cash equivalents at end of period			¥	591,130		¥	445,206		$	4,926,083		¥	521,271

- 15 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

8.		BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

(1)		CHANGES IN GROUP OF ENTITIES

		Subsidiaries

Addition:		Fukushima Canon Inc. and 10 other companies

Removal:		Copyer Co., Ltd and 3 other companies

		Notes:	1. Fukushima Canon Inc. was established as a wholly owned subsidiary in April 2003 through the spin-off of Fukushima Plant.

			2. Copyer Co., Ltd have merged with Canon Aptex Inc. and became as Canon Finetech Inc. on January 1, 2003.

Affiliates (Carried at Equity Basis)

Addition:		1 company

Removal:		None

(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.

	1.		Marketable Securities and Investments

			Canon’s consolidated financial statements are based on Statement of Financial Accounting Standards No.115 (SFAS 115), “Accounting for Certain Investments in Debt and Equity Securities.” Under SFAS 115, certain investments in debt and equity securities should be classified as trading, available-for-sale or held-to-maturity. Canon’s marketable securities and investments consist of available-for-sale securities. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of other comprehensive income (loss) until realized.

	2.		Inventories

			Inventories are stated at the lower of cost or market. Cost is determined principally by the average method for domestic inventories and the first-in, first-out method for overseas inventories.

	3.		Depreciation

			Depreciation is calculated principally by the declining-balance method over the estimated useful lives of assets.

	4.		Employee Retirement and Severance Benefits

			Canon has been adopting Statement of Financial Accounting Standards No.87, “Employer’s Accounting for Pensions.”

	5.		New Accounting Standards

			In March 2003, the Emerging Issue Task Force (“EITF”) reached a final consensus on EITF 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor.” Canon adopted EITF 02-16 on January 1, 2003. The adoption of EITF 02-16 did not have a material effect on Canon’s consolidated financial position and results of operations.

			In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.146 (SFAS 146), “Accounting for Costs Associated with Exit or Disposal Activities.“Canon adopted the provisions of SFAS 146 on January 1, 2003.The adoption of SFAS 146 did not have a material effect on Canon’s consolidated financial position and results of operations.

- 16 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

9.		MARKETABLE SECURITIES AND DERIVATIVE CONTRACTS

(1)		MARKET VALUE ON MARKETABLE SECURITIES


		Millions of yen

		As of June 30, 2003							As of December 31, 2002

		Acquisition		Estimated		Unrealized			Acquisition		Estimated		Unrealized
		Cost		Fair Value		Gains/Losses			Cost		Fair Value		Gains/Losses

Marketable securities:
	Governmental bond securities	¥	65	¥	63	¥	(2	)	¥	59	¥	61	¥	2
	Corporate debt securities		57		98		41			5,698		5,728		30
	Bank debt securities		91		91		—			91		91		—
	Fund trust		5		10		5			220		310		90
	Equity securities		1,098		1,152		54			1,194		1,065		(129	)

		¥	1,316	¥	1,414	¥	98		¥	7,262	¥	7,255	¥	(7	)

Investment securities:
	Governmental bond securities	¥	241	¥	249	¥	8		¥	220	¥	227	¥	7
	Corporate debt securities		5,150		5,210		60			5,149		5,173		24
	Bank debt securities		—		—		—			150		150		—
	Fund trust		2,087		2,317		230			2,302		2,109		(193	)
	Equity securities		4,674		8,187		3,513			5,263		7,011		1,748

		¥	12,152	¥	15,963	¥	3,811		¥	13,084	¥	14,670	¥	1,586




		Thousands of U.S. dollars
		As of June 30, 2003

		Acquisition		Estimated		Unrealized
		Cost		Fair Value		Gains/Losses

Marketable securities:
	Governmental bond securities	$	542	$	525	$	(17	)
	Corporate debt securities		475		817		342
	Bank debt securities		758		758		—
	Fund trust		42		83		41
	Equity securities		9,150		9,600		450

		$	10,967	$	11,783	$	816

Investment securities:
	Governmental bond securities	$	2,008	$	2,075	$	67
	Corporate debt securities		42,917		43,417		500
	Bank debt securities		—		—		—
	Fund trust		17,392		19,308		1,916
	Equity securities		38,950		68,225		29,275

		$	101,267	$	133,025	$	31,758

- 17 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

(2)

DERIVATIVE CONTRACTS


			Millions of yen										Thousands of U.S. dollars

			As of June 30, 2003					As of December 31, 2002					As of June 30, 2003

			Contract		Estimated			Contract		Estimated			Contract		Estimated
			Amount		Fair Value			Amount		Fair Value			Amount		Fair Value

Trade receivables and anticipated sales transactions:
		To sell foreign currencies	¥	437,870	¥	(4,274	)	¥	422,796	¥	1,490		$	3,648,917	$	(35,617	)
		To buy foreign currencies		7,525		(337	)		6,652		(391	)		62,708		(2,808	)
Long-term debt (including due within a year):
	Interest rate swaps:
		Receive-fixed	¥	—	¥	—		¥	180	¥	1		$	—	$	—
		Pay-fixed		73,958		(1,270	)		57,270		(1,149	)		616,317		(10,583	)

- 18 -

CANON INC.

NON-CONSOLIDATED


1.	NON-CONSOLIDATED STATEMENTS OF INCOME


	(Parent company only)


			Millions of yen								Millions of yen

			Six months			Six months					Year ended
			ended			ended					December 31,
			June 30, 2003			June 30, 2002			Change (%)		2002

Net sales			¥	946,551		¥	808,357		+	17.1	¥	1,789,005
Cost of sales				569,687			525,023					1,149,326

		Gross profit		376,864			283,333		+	33.0		639,679
Selling, general and administrative expenses				222,473			193,482					402,485

		Operating profit		154,391			89,851		+	71.8		237,193
Other income (deductions):
	Interest and dividend income			3,943			8,612					10,543
	Interest expense			(133	)		(152	)				(282	)
	Other, net			6,092			(4,612	)				(6,470	)

				9,902			3,847					3,789

		Ordinary profit		164,293			93,698		+	75.3		240,982
Non-ordinary loss, net				(43,826	)		3,146					8,693

		Income before income taxes		208,119			90,551					232,289
Income taxes				79,344			32,073					88,105

		Net income	¥	128,775		¥	58,478		+	120.2	¥	144,184

Earnings per share:			Yen								Yen

	Basic		¥	146.69		¥	66.71				¥	164.46

2.	DETAILS OF SALES


	(Parent company only)

Sales by product


		Millions of yen						Millions of yen

		Six months		Six months				Year ended
		ended		ended				December 31,
		June 30, 2003		June 30, 2002		Change (%)		2002

Business machines:
	Office Imaging Products	¥	235,822	¥	228,877	+	+3.0	¥	455,888
	Computer peripherals		448,343		396,205	+	13.2		882,792

			684,165		625,082	+	9.5		1,338,680
Cameras			208,302		146,805	+	41.9		346,433
Optical and other products			54,084		36,468	+	48.3		103,890

	Total	¥	946,551	¥	808,357	+	17.1	¥	1,789,005



Sales by region


			Millions of yen						Millions of yen

			Six months		Six months				Year ended
			ended		ended				December 31,
			June 30, 2003		June 30, 2002		Change (%)		2002

Japan			¥	152,156	¥	138,927	+	9.5	¥	298,905
Overseas:
	Americas			349,248		299,151	+	16.7		686,119
	Europe			318,335		268,421	+	18.6		562,156
	Other areas			126,812		101,856	+	24.5		241,822

				794,395		669,429	+	18.7		1,490,099

		Total	¥	946,551	¥	808,357	+	17.1	¥	1,789,005

- 19 -

CANON INC.

NON-CONSOLIDATED

3.		NON-CONSOLIDATED BALANCE SHEETS

		(Parent company only)


				Millions of yen

				As of			As of						As of
				June 30, 2003			Dec. 31, 2002			Change			June 30, 2002

ASSETS
	Current assets:
		Cash		¥	155,571		¥	64,262		¥	91,309		¥	70,017
		Trade receivables			543,242			577,372			(34,130	)		465,620
		Marketable securities			99			474			(375	)		395
		Inventories			200,110			176,305			23,805			169,882
		Prepaid expenses and other current assets			138,349			144,653			(6,304	)		142,617
		Allowance for doubtful accounts			(10,053	)		(10,986	)		933			(10,176	)

			Total current assets		1,027,318			952,082			75,236			838,357

	Fixed assets:
		Net property, plant and equipment			451,556			440,501			11,055			445,861
		Intangibles			22,940			27,668			(4,728	)		33,060
		Investments and other fixed assets			421,551			427,937			(6,386	)		422,628
		Allowance for doubtful accounts			(43	)		(52	)		9			(16	)

			Total fixed assets		896,004			896,054			(50	)		901,534

			Total assets	¥	1,923,322		¥	1,848,136		¥	75,186		¥	1,739,891

LIABILITIES AND STOCKHOLDERS’ EQUITY
	Current liabilities:
		Trade payables		¥	265,182		¥	279,901		¥	(14,719	)	¥	271,186
		Short-term loans			57,652			53,772			3,880			63,173
		Income taxes			58,280			62,629			(4,349	)		30,922
		Other current liabilities			74,587			44,803			29,784			40,586

			Total current liabilities		455,701			441,106			14,595			405,869

	Long-term debt, excluding current installments				13,751			15,032			(1,281	)		18,219
	Accrued pension and severance cost				104,105			156,687			(52,582	)		152,419

			Total liabilities		573,557			612,827			(39,270	)		576,507

	Stockholders’ equity:
		Common stock			167,883			167,242			641			165,651
		Additional paid-in capital			299,419			298,778			641			297,189
		Retained earnings			887,562			774,287			113,275			699,541
		Net unrealized gains on securities			1,624			1,162			462			2,205
		Treasury stock			(6,723	)		(6,162	)		(561	)		(1,203	)

			Total stockholders’ equity		1,349,765			1,235,309			114,456			1,163,384

			Total liabilities and stockholders’ equity	¥	1,923,322		¥	1,848,136		¥	75,186		¥	1,739,891


				Millions of yen									Millions of yen

				As of			As of						As of
				June 30, 2003			Dec. 31, 2002						June 30, 2002

Accumulated depreciation				¥	580,732		¥	575,256					¥	567,337

- 20 -

CONSOLIDATED FINANCIAL RESULTS FOR THE SECOND QUARTER
AND THE FIRST HALF ENDED JUNE 30, 2003

SUPPLEMENTARY REPORT

TABLE OF CONTENTS


		PAGE

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

This report contains forward-looking statements which 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 any forward-looking statements.
Further, certain forward-looking statements are based upon assumptions of future events which may not prove to be accurate. (Cautionary Statements for Purposes of the Safe Harbor Provisions of the United States Private Securities Litigation Reform Act of 1995.)

Canon Inc.

SALES BY REGION AND PRODUCT


		(Millions of yen)
		2003										2002

		2nd quarter		1st half		3rd quarter		2nd half		Year		2nd quarter		1st half		3rd quarter		2nd half		Year

						(P)		(P)		(P)
Japan
	Business machines		145,331		283,912		131,000		290,988		574,900		135,228		273,194		123,246		277,035		550,229

	Office imaging products		76,837		151,010		74,300		152,090		303,100		66,693		132,799		62,032		129,253		262,052
	Computer peripherals		43,875		81,171		32,900		88,929		170,100		38,979		76,661		33,220		92,952		169,613
	Business information products		24,619		51,731		23,800		49,969		101,700		29,556		63,734		27,994		54,830		118,564

	Cameras		25,208		46,782		24,700		55,518		102,300		24,643		43,269		22,619		49,312		92,581
	Optical and other products		27,402		53,225		35,500		70,475		123,700		22,879		44,675		23,306		45,066		89,741

	Total		197,941		383,919		191,200		416,981		800,900		182,750		361,138		169,171		371,413		732,551

Overseas
	Business machines		431,152		844,046		421,700		879,754		1,723,800		419,096		798,489		397,837		877,477		1,675,966

	Office imaging products		201,465		381,613		188,400		396,287		777,900		199,040		384,153		172,900		376,926		761,079
	Computer peripherals		223,788		450,091		226,600		468,909		919,000		213,051		399,627		218,385		486,716		886,343
	Business information products		5,899		12,342		6,700		14,558		26,900		7,005		14,709		6,552		13,835		28,544

	Cameras		141,049		237,019		114,600		276,181		513,200		101,038		168,123		93,263		225,074		393,197
	Optical and other products		33,885		70,604		28,500		71,496		142,100		30,508		56,733		33,711		81,681		138,414

	Total		606,086		1,151,669		564,800		1,227,431		2,379,100		550,642		1,023,345		524,811		1,184,232		2,207,577

Americas
	Business machines		198,038		390,692		189,400		384,208		774,900		193,342		372,610		194,850		424,888		797,498

	Office imaging products		95,541		183,685		91,600		184,615		368,300		99,037		190,947		91,115		187,857		378,804
	Computer peripherals		99,306		200,163		94,100		191,637		391,800		90,737		173,980		100,142		229,611		403,591
	Business information products		3,191		6,844		3,700		7,956		14,800		3,568		7,683		3,593		7,420		15,103

	Cameras		63,545		105,130		53,500		130,970		236,100		45,938		75,309		42,588		105,145		180,454
	Optical and other products		6,685		15,266		6,500		14,034		29,300		6,431		14,853		7,884		17,361		32,214

	Total		268,268		511,088		249,400		529,212		1,040,300		245,711		462,772		245,322		547,394		1,010,166

Europe
	Business machines		179,676		353,067		179,000		388,333		741,400		170,425		325,728		153,453		351,157		676,885

	Office imaging products		87,350		164,195		78,700		176,005		340,200		82,116		158,980		66,039		156,364		315,344
	Computer peripherals		90,352		184,734		98,000		207,166		391,900		85,787		161,302		85,193		189,787		351,089
	Business information products		1,974		4,138		2,300		5,162		9,300		2,522		5,446		2,221		5,006		10,452

	Cameras		60,342		99,084		43,600		108,016		207,100		40,993		68,475		35,320		87,769		156,244
	Optical and other products		8,090		12,368		5,000		15,132		27,500		6,447		12,414		3,489		11,624		24,038

	Total		248,108		464,519		227,600		511,481		976,000		217,865		406,617		192,262		450,550		857,167

Other areas
	Business machines		53,438		100,287		53,300		107,213		207,500		55,329		100,151		49,534		101,432		201,583

	Office imaging products		18,574		33,733		18,100		35,667		69,400		17,887		34,226		15,746		32,705		66,931
	Computer peripherals		34,130		65,194		34,500		70,106		135,300		36,527		64,345		33,050		67,318		131,663
	Business information products		734		1,360		700		1,440		2,800		915		1,580		738		1,409		2,989

	Cameras		17,162		32,805		17,500		37,195		70,000		14,107		24,339		15,355		32,160		56,499
	Optical and other products		19,110		42,970		17,000		42,330		85,300		17,630		29,466		22,338		52,696		82,162

	Total		89,710		176,062		87,800		186,738		362,800		87,066		153,956		87,227		186,288		340,244

Total
	Business machines		576,483		1,127,958		552,700		1,170,742		2,298,700		554,324		1,071,683		521,083		1,154,512		2,226,195

	Office imaging products		278,302		532,623		262,700		548,377		1,081,000		265,733		516,952		234,932		506,179		1,023,131
	Computer peripherals		267,663		531,262		259,500		557,838		1,089,100		252,030		476,288		251,605		579,668		1,055,956
	Business information products		30,518		64,073		30,500		64,527		128,600		36,561		78,443		34,546		68,665		147,108

	Cameras		166,257		283,801		139,300		331,699		615,500		125,681		211,392		115,882		274,386		485,778
	Optical and other products		61,287		123,829		64,000		141,971		265,800		53,387		101,408		57,017		126,747		228,155

	Total		804,027		1,535,588		756,000		1,644,412		3,180,000		733,392		1,384,483		693,982		1,555,645		2,940,128

(P)=Projection

Note)

From the 1st quarter of 2003, facsimiles which included personal digital MFPs etc. based on electrophotography technology were reclassified and are now included in Copying Machines, renamed Office Imaging Products. Those products based on inkjet technology were moved to Inkjet Printers in Computer Peripherals. In connection with this adjustment, Business Systems were renamed Business Information Products. Values for the previous year are restated to conform to the reclassification.

-S1-

SALES BY REGION AND PRODUCT (Continued)

Canon Inc.


		Change year over year

		2nd quarter			1st half			3rd quarter			2nd half			Year

Japan
	Business machines		+7.5	%		+3.9	%		+6.3	%		+5.0	%		+4.5	%

	Office imaging products		+15.2	%		+13.7	%		+19.8	%		+17.7	%		+15.7	%
	Computer peripherals		+12.6	%		+5.9	%		-1.0	%		-4.3	%		+0.3	%
	Business information products		-16.7	%		-18.8	%		-15.0	%		-8.9	%		-14.2	%

	Cameras		+2.3	%		+8.1	%		+9.2	%		+12.6	%		+10.5	%
	Optical and other products		+19.8	%		+19.1	%		+52.3	%		+56.4	%		+37.8	%

	Total		+8.3	%		+6.3	%		+13.0	%		+12.3	%		+9.3	%

Overseas
	Business machines		+2.9	%		+5.7	%		+6.0	%		+0.3	%		+2.9	%

	Office imaging products		+1.2	%		-0.7	%		+9.0	%		+5.1	%		+2.2	%
	Computer peripherals		+5.0	%		+12.6	%		+3.8	%		-3.7	%		+3.7	%
	Business information products		-15.8	%		-16.1	%		+2.3	%		+5.2	%		-5.8	%

	Cameras		+39.6	%		+41.0	%		+22.9	%		+22.7	%		+30.5	%
	Optical and other products		+11.1	%		+24.4	%		-15.5	%		-12.5	%		+2.7	%

	Total		+10.1	%		+12.5	%		+7.6	%		+3.6	%		+7.8	%

Americas
	Business machines		+2.4	%		+4.9	%		-2.8	%		-9.6	%		-2.8	%

	Office imaging products		-3.5	%		-3.8	%		+0.5	%		-1.7	%		-2.8	%
	Computer peripherals		+9.4	%		+15.0	%		-6.0	%		-16.5	%		-2.9	%
	Business information products		-10.6	%		-10.9	%		+3.0	%		+7.2	%		-2.0	%

	Cameras		+38.3	%		+39.6	%		+25.6	%		+24.6	%		+30.8	%
	Optical and other products		+3.9	%		+2.8	%		-17.6	%		-19.2	%		-9.0	%

	Total		+9.2	%		+10.4	%		+1.7	%		-3.3	%		+3.0	%

Europe
	Business machines		+5.4	%		+8.4	%		+16.6	%		+10.6	%		+9.5	%

	Office imaging products		+6.4	%		+3.3	%		+19.2	%		+12.6	%		+7.9	%
	Computer peripherals		+5.3	%		+14.5	%		+15.0	%		+9.2	%		+11.6	%
	Business information products		-21.7	%		-24.0	%		+3.6	%		+3.1	%		-11.0	%

	Cameras		+47.2	%		+44.7	%		+23.4	%		+23.1	%		+32.5	%
	Optical and other products		+25.5	%		-0.4	%		+43.3	%		+30.2	%		+14.4	%

	Total		+13.9	%		+14.2	%		+18.4	%		+13.5	%		+13.9	%

Other areas
	Business machines		-3.4	%		+0.1	%		+7.6	%		+5.7	%		+2.9	%

	Office imaging products		+3.8	%		-1.4	%		+14.9	%		+9.1	%		+3.7	%
	Computer peripherals		-6.6	%		+1.3	%		+4.4	%		+4.1	%		+2.8	%
	Business information products		-19.8	%		-13.9	%		-5.1	%		+2.2	%		-6.3	%

	Cameras		+21.7	%		+34.8	%		+14.0	%		+15.7	%		+23.9	%
	Optical and other products		+8.4	%		+45.8	%		-23.9	%		-19.7	%		+3.8	%

	Total		+3.0	%		+14.4	%		+0.7	%		+0.2	%		+6.6	%

Total
	Business machines		+4.0	%		+5.3	%		+6.1	%		+1.4	%		+3.3	%

	Office imaging products		+4.7	%		+3.0	%		+11.8	%		+8.3	%		+5.7	%
	Computer peripherals		+6.2	%		+11.5	%		+3.1	%		-3.8	%		+3.1	%
	Business information products		-16.5	%		-18.3	%		-11.7	%		-6.0	%		-12.6	%

	Cameras		+32.3	%		+34.3	%		+20.2	%		+20.9	%		+26.7	%
	Optical and other products		+14.8	%		+22.1	%		+12.2	%		+12.0	%		+16.5	%

	Total		+9.6	%		+10.9	%		+8.9	%		+5.7	%		+8.2	%

(Note)

From the 1st quarter of 2003, facsimiles which included personal digital MFPs etc. based on electrophotography technology were reclassified and are now included in Copying Machines, renamed Office Imaging Products. Those products based on inkjet technology were moved to Inkjet Printers in Computer Peripherals. In connection with this adjustment, Business Systems were renamed Business Information Products. Values for the previous year are restated to conform to the reclassification.

- S2 -

SEGMENT INFORMATION BY PRODUCT

Canon Inc.


		(Millions of yen)

		2003															2002

		2nd quarter			1st half			3rd quarter			2nd half			Year			2nd quarter			1st half			3rd quarter			2nd half			Year

								(P)			(P)			(P)
Business machines
	Unaffiliated customers		576,483			1,127,958			552,700			1,170,742			2,298,700			554,324			1,071,683			521,083			1,154,512			2,226,195
	Intersegment		—			—			—			—			—			—			—			—			—			—

	Total sales		576,483			1,127,958			552,700			1,170,742			2,298,700			554,324			1,071,683			521,083			1,154,512			2,226,195

	Operating profit		114,051			237,421			116,300			242,779			480,200			95,280			177,851			103,453			233,165			411,016
	% of sales		19.8	%		21.0	%		21.0	%		20.7	%		20.9	%		17.2	%		16.6	%		19.9	%		20.2	%		18.5	%

Cameras
	Unaffiliated customers		166,257			283,801			139,300			331,699			615,500			125,681			211,392			115,882			274,386			485,778
	Intersegment		—			—			—			—			—			—			—			—			—			—

	Total sales		166,257			283,801			139,300			331,699			615,500			125,681			211,392			115,882			274,386			485,778

	Operating profit		28,126			49,794			25,500			59,006			108,800			17,359			28,055			20,168			42,235			70,290
	% of sales		16.9	%		17.5	%		18.3	%		17.8	%		17.7	%		13.8	%		13.3	%		17.4	%		15.4	%		14.5	%

Optical and other products
	Unaffiliated customers		61,287			123,829			64,000			141,971			265,800			53,387			101,408			57,017			126,747			228,155
	Intersegment		39,327			74,037			37,000			75,563			149,600			34,485			63,259			39,101			76,349			139,608

	Total sales		100,614			197,866			101,000			217,534			415,400			87,872			164,667			96,118			203,096			367,763

	Operating profit		-2,967			-1,153			200			153			-1,000			-4,036			-8,491			-2,924			-3,161			-11,652
	% of sales		-2.9	%		-0.6	%		0.2	%		0.1	%		-0.2	%		-4.6	%		-5.2	%		-3.0	%		-1.6	%		-3.2	%

Corporate and Eliminations
	Unaffiliated customers		—			—			—			—			—			—			—			—			—			—
	Intersegment		-39,327			-74,037			-37,000			-75,563			-149,600			-34,485			-63,259			-39,101			-76,349			-139,608

	Total sales		-39,327			-74,037			-37,000			-75,563			-149,600			-34,485			-63,259			-39,101			-76,349			-139,608

	Operating profit		-40,643			-70,088			-33,000			-73,912			-144,000			-33,126			-57,387			-27,967			-65,908			-123,295

Consolidated
	Unaffiliated customers		804,027			1,535,588			756,000			1,644,412			3,180,000			733,392			1,384,483			693,982			1,555,645			2,940,128
	Intersegment		—			—			—			—			—			—			—			—			—			—

	Total sales		804,027			1,535,588			756,000			1,644,412			3,180,000			733,392			1,384,483			693,982			1,555,645			2,940,128

	Operating profit		98,567			215,974			109,000			228,026			444,000			75,477			140,028			92,730			206,331			346,359
	% of sales		12.3	%		14.1	%		14.4	%		13.9	%		14.0	%		10.3	%		10.1	%		13.4	%		13.3	%		11.8	%

(P)=Projection

SEGMENT INFORMATION BY PRODUCT (Continued)


		Change year over year

		2nd quarter			1st half			3rd quarter			2nd half			Year

Business machines
	Unaffiliated customers		+4.0	%		+5.3	%		+6.1	%		+1.4	%		+3.3	%
	Intersegment		—			—			—			—			—

	Total sales		+4.0	%		+5.3	%		+6.1	%		+1.4	%		+3.3	%

	Operating profit		+19.7	%		+33.5	%		+12.4	%		+4.1	%		+16.8	%
	% of sales		—			—			—			—			—

Cameras
	Unaffiliated customers		+32.3	%		+34.3	%		+20.2	%		+20.9	%		+26.7	%
	Intersegment		—			—			—			—			—

	Total sales		+32.3	%		+34.3	%		+20.2	%		+20.9	%		+26.7	%

	Operating profit		+62.0	%		+77.5	%		+26.4	%		+39.7	%		+54.8	%
	% of sales		—			—			—			—			—

Optical and other products
	Unaffiliated customers		+14.8	%		+22.1	%		+12.2	%		+12.0	%		+16.5	%
	Intersegment		+14.0	%		+17.0	%		-5.4	%		-1.0	%		+7.2	%

	Total sales		+14.5	%		+20.2	%		+5.1	%		+7.1	%		+13.0	%

	Operating profit		—			—			—			—			—
	% of sales		—			—			—			—			—

Corporate and Eliminations
	Unaffiliated customers		—			—			—			—			—
	Intersegment		—			—			—			—			—

	Total sales		—			—			—			—			—

	Operating profit		—			—			—			—			—

Consolidated
	Unaffiliated customers		+9.6	%		+10.9	%		+8.9	%		+5.7	%		+8.2	%
	Intersegment		—			—			—			—			—

	Total sales		+9.6	%		+10.9	%		+8.9	%		+5.7	%		+8.2	%

	Operating profit		+30.6	%		+54.2	%		+17.5	%		+10.5	%		+28.2	%
	% of sales		—			—			—			—			—

- S3 -

Canon Inc.

OTHER INCOME / DEDUCTIONS


	(Millions of yen)

	2003										2002

	2nd quarter		1st half		3rd quarter		2nd half		Year		2nd quarter		1st half		3rd quarter		2nd half		Year

					(P)		(P)		(P)
Interest & dividend, net		1,030		1,980		1,100		1,920		3,900		550		1,252		789		1,158		2,410
Forex gain / loss		-1,087		-2,766		-3,800		-7,134		-9,900		-13,707		-18,173		3,044		-5,295		-23,468
Equity earnings / loss of affiliated companies		-712		-2,044		-700		-856		-2,900		-164		-1,800		-862		-1,721		-3,521
Others, net		509		2,362		1,400		2,538		4,900		3,022		5,888		2,675		2,349		8,237

Total		-260		-468		-2,000		-3,532		-4,000		-10,299		-12,833		5,646		-3,509		-16,342

(P)=Projection

OTHER INCOME / DEDUCTIONS (Continued)

(Millions of yen)

Change year over year

2nd quarter

1st half

3rd quarter

2nd half

Year

Interest & dividend, net

+480

+728

+311

+762

+1,490

Forex gain / loss

+12,620

+15,407

-6,844

-1,839

+13,568

Equity earnings / loss of affiliated companies

-548

-244

+162

+865

+621

Others, net

-2,513

-3,526

-1,275

+189

-3,337

Total

+10,039

+12,365

-7,646

-23

+12,342

-S4-

Canon Inc.

SALES COMPOSITION BY PRODUCT


			2003															2002

			2nd quarter			1st half			3rd quarter			2nd half			Year			2nd quarter			1st half			3rd quarter			2nd half			Year

									(P)			(P)			(P)
Office imaging products
	Copying machines			92	%		92	%		93	%		93	%		92	%		92	%		91	%		92	%		92	%		92	%
		Monochrome		79	%		80	%		80	%		81	%		80	%		82	%		82	%		82	%		81	%		82	%
		Color		21	%		20	%		20	%		19	%		20	%		18	%		18	%		18	%		19	%		18	%
		Digital*		92	%		93	%		—			—			—			91	%		90	%		89	%		90	%		90	%
		Analog*		8	%		7	%		—			—			—			9	%		10	%		11	%		10	%		10	%
	Electrophotography based facsimiles, etc.			8	%		8	%		7	%		7	%		8	%		8	%		9	%		8	%		8	%		8	%
Computer peripherals
		Laser beam printers		70	%		71	%		72	%		69	%		70	%		69	%		66	%		72	%		68	%		68	%
		Inkjet printers		27	%		26	%		25	%		28	%		27	%		28	%		30	%		25	%		28	%		29	%
		(includes inkjet MFPs) Others		3	%		3	%		3	%		3	%		3	%		3	%		4	%		3	%		4	%		3	%
Business information products
		Personal computers		77	%		78	%		76	%		75	%		76	%		80	%		80	%		80	%		79	%		79	%
		Others		23	%		22	%		24	%		25	%		24	%		20	%		20	%		20	%		21	%		21	%
Cameras
		Film cameras / Lenses		21	%		22	%		14	%		16	%		19	%		32	%		34	%		30	%		29	%		31	%
		Digital cameras		59	%		59	%		63	%		63	%		61	%		45	%		43	%		44	%		47	%		45	%
		Video camcorders		20	%		19	%		23	%		21	%		20	%		23	%		23	%		26	%		24	%		24	%
Optical and other products
		Semiconductor production equipment		44	%		50	%		46	%		49	%		49	%		43	%		43	%		46	%		51	%		48	%
		Others		56	%		50	%		54	%		51	%		51	%		57	%		57	%		54	%		49	%		52	%

(P)=Projection

Among office-use monochrome copying machines (hardware only)

SALES GROWTH IN LOCAL CURRENCY


		2003
		Change year over year

		2nd quarter			1st half			3rd quarter			2nd half			Year

								(P)			(P)			(P)
Business machines
	Japan		+7.5	%		+3.9	%		+6.3	%		+5.0	%		+4.5	%
	Overseas		+2.6	%		+7.7	%		+2.6	%		-1.4	%		+3.0	%

	Total		+3.8	%		+6.8	%		+3.5	%		+0.1	%		+3.3	%

Cameras
	Japan		+2.3	%		+8.1	%		+9.2	%		+12.6	%		+10.5	%
	Overseas		+36.4	%		+40.5	%		+18.0	%		+19.9	%		+28.7	%

	Total		+29.7	%		+33.9	%		+16.3	%		+18.6	%		+25.3	%

Optical and other products
	Japan		+19.8	%		+19.1	%		+52.3	%		+56.4	%		+37.8	%
	Overseas		+10.3	%		+26.3	%		-16.9	%		-13.2	%		+3.0	%

	Total		+14.4	%		+23.2	%		+11.4	%		+11.5	%		+16.7	%

Total
	Japan		+8.3	%		+6.3	%		+13.0	%		+12.3	%		+9.3	%
	Overseas		+9.3	%		+14.2	%		+4.1	%		+1.8	%		+7.5	%
	Americas		+16.8	%		+20.4	%		+2.8	%		-0.8	%		+8.9	%
	Europe		+2.1	%		+4.9	%		+7.9	%		+5.7	%		+5.3	%
	Other areas		+6.0	%		+19.7	%		-0.7	%		+0.3	%		+9.1	%

	Total		+9.0	%		+12.1	%		+6.3	%		+4.3	%		+8.0	%

(P)=Projection

(Note)

From the 1st quarter of 2003, facsimiles which included personal digital MFPs etc. based on electrophotography technology were reclassified and are now included in Copying Machines, renamed Office Imaging Products. Those products based on inkjet technology were moved to Inkjet Printers in Computer Peripherals. In connection with this adjustment, Business Systems were renamed Business Information Products. Values for the previous year are restated to conform to the reclassification.

-S5-

Canon Inc.

P&L SUMMARY (3rd Quarter 2003/Projection)


	(Millions of yen)

	2003		2002		Change
	3rd quarter(P)		3rd quarter		year over year

Net sales		756,000		693,982		+8.9	%
Operating profit		109,000		92,730		+17.5	%
Income before income taxes		107,000		98,376		+8.8	%
Net income		65,000		57,464		+13.1	%

(P)=Projection

PROFITABILITY


	2003						2002

	1st half			Year(P)			1st half			Year

ROE		15.3	%		15.2	%		9.9	%		12.5	%
ROA		8.4	%		8.5	%		5.2	%		6.6	%

(P)=Projection

IMPACT OF FOREIGN EXCHANGE RATES

(1)

Exchange rates


	(Yen)

	2003						2002

	1st half		2nd half(P)		Year(P)		1st half		Year

Yen/US$		118.70		118.00		118.34		129.31		124.73
Yen/Euro		131.46		132.00		131.74		116.35		118.39

(P)=Projection

(2)

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


		(Billions of yen)
		2003

		1st half		Year(P)

US$			-62.2		-80.7
Euro			+44.8		+82.3
Other currencies			+0.8		+3.3

	Total		-16.6		+4.9

(P)=Projection

(3)

Impact of foreign exchange rates per yen


		(Billions of yen)
		2003
		2nd half(P)

On sales
	US$		6.1
	Euro		3.2
On operating profit
	US$		2.5
	Euro		2.1

(P)=Projection

CASH FLOWS


		(Millions of yen)

		2003				2002

		1st half		Year (P)		1st half		Year

Net cash provided by operating activities
	Net income		127,767		263,000		73,205		190,737
	Depreciation and amortization		85,094		177,000		71,945		165,260
	Other, net		15,439		54,000		57,767		92,953

	Total		228,300		494,000		202,917		448,950

	Net cash used in investing activities		-111,328		-234,000		-130,666		-230,220
Free cash flow			116,972		260,000		72,251		218,730
	Net cash provided by (used in) financing activities		-46,688		-94,000		-119,933		-183,714
	Effect of exchange rate changes on cash & cash equivalents		-425		-4,371		-13,346		-19,979
Net change in cash and cash equivalents			69,859		161,629		-61,028		15,037
Cash and cash equivalents at end of each period			591,130		682,900		445,206		521,271

(P)=Projection

- S6 -

Canon Inc.

10.

R&D EXPENDITURE


		(Millions of yen)

		2003						2002

		1st half			Year (P)			1st half			Year

Business machines			58,456			—			55,434			110,290
Cameras			15,528			—			12,983			25,975
Optical and other products			51,748			—			42,158			97,404

	Total		125,732			260,000			110,575			233,669

% of sales			8.2	%		8.2	%		8.0	%		7.9	%

(P)=Projection

11.

CAPITAL EXPENDITURE & DEPRECIATION AND AMORTIZATION


	(Millions of yen)

	2003				2002

	1st half		Year (P)		1st half		Year

Capital expenditure		109,793		230,000		104,906		198,702
Depreciation and amortization		85,094		177,000		71,945		165,260

(P)=Projection

12.

INVENTORIES

(1)

Inventories

(Millions of yen)

2003

2002

Jun. 30

Dec. 31

Difference

Business machines

265,519

247,804

+17,715

Cameras

63,693

53,343

+10,350

Optical and other products

146,702

131,104

+15,598

Total

475,914

432,251

+43,663

(2)

Inventories/Sales*

(Days)

2003

2002

Jun. 30

Dec. 31

Difference

Business machines

Cameras

Optical and other products

216

189

+27

Total

* Index based on the previous six months sales.

13.

DEBT RATIO


	2003			2002

	Jun. 30			Dec. 31			Difference

Total debt / Total assets		4.7	%		5.0	%		-0.3	%

14.

OVERSEAS PRODUCTION RATIO


	2003			2002

	1st half			Year

Overseas production ratio		41	%		38	%

15.

NUMBER OF EMPLOYEES

2003

2002

Jun. 30

Dec. 31

Difference

Japan

45,750

44,443

+1,307

Overseas

54,558

53,359

+1,199

Total

100,308

97,802

+2,506

- S7 -

The companies with (*) are affiliated companies (equity method).

Following subsidiaries are listed on domestic stock exchange.

Tokyo Stock Exchange (1st section): Canon Sales Co., Inc., Canon Electronics Inc., Canon Finetech Inc.

JASDAQ: Canon Software Inc., Nisca Corporation.