SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                            ------------------------



                                   FORM 20-F


     (      )           REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
                         OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
                                              OR
     (  X   )            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                            OF THE SECURITIES EXCHANGE ACT OF 1934
                          For the fiscal year ended December 31, 2001
                      ---------------------------------------------------
                                Commission file number 0-12131
                      ---------------------------------------------------
                                              OR
     (      )          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                            OF THE SECURITIES EXCHANGE ACT OF 1934
                        For the transition period from ______ to ______



                             CANON KABUSHIKI KAISHA
          (Name of Registrant in Japanese as specified in its charter)


                                   CANON INC.
          (Name of Registrant in English as specified in its charter)


                                     JAPAN
                (Jurisdiction of incorporation or organization)

           30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo 146-8501, Japan
                    (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.


                                                    Name of each exchange
         Title of each class                         on which registered
---------------------------------------         -------------------------------
(1) Common Stock (the "shares")                     New York Stock Exchange

(2) American Depositary Shares ("ADSs"),
    each of which represents one share              New York Stock Exchange



Securities registered or to be registered pursuant to Section 12(g) of the Act.

                                      None
                                (Title of Class)

               -------------------------------------------------

        Securities for which there is a reporting obligation pursuant to
                           Section 15(d) of the Act.

                                      None
                                (Title of Class)

-------------------------------------------------------------------------------

   *  American Depositary Receipts for 50,000,000 American Depositary Shares,
      each American Depositary Share representing 1 share of common stock of
      Canon Inc., were registered under the Securities Act of 1933.


<PAGE>



   Indicate the number of outstanding shares of each of the issuer's classes of
   capital or common stock as of the close of the period covered by the annual
   report.

As of December 31, 2001, 876,282,332 shares of common stock, including
22,265,749 ADSs, were outstanding.

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes  X         No
   ---------     ---------

Indicate by check mark which financial statement item the registrant has
elected to follow.

Item 17  X     Item 18
       ------         ------



<PAGE>



                               TABLE OF CONTENTS

                                                                           Page

CERTAIN DEFINED TERMS, CONVENTIONS AND PRESENTATION OF FINANCIAL
INFORMATION..................................................................1


FORWARD-LOOKING INFORMATION..................................................1

                                     PART I

Item 1. Identity of Directors, Senior Management and Advisers................2


Item 2. Offer Statistics and Expected Timetable..............................2


Item 3. Key Information......................................................2

      A.  Selected financial data............................................2
      B.  Capitalization and indebtedness....................................3
      C.  Reasons for the offer and use of proceeds..........................3
      D.  Risk factors.......................................................3

Item 4. Information on the Company...........................................4

      A.  History and development of the Company.............................4
      B.  Business overview..................................................5
          Products...........................................................6
          Marketing and distribution.........................................8
          Service............................................................9
          Net sales by product group and region of origination...............9
          Seasonality.......................................................10
          Sources of supply.................................................10
          Competition.......................................................10
          Patents and licenses..............................................11
          Regarding the environment.........................................11
      C.  Organizational structure..........................................11
      D.  Property, plants and equipment....................................12

Item 5. Operating and Financial Review and Prospects........................15

      A.  Operating Results.................................................15
          General...........................................................15
          Overview..........................................................15
          Consolidated result of operations.................................15
             Fiscal 2001 compared with fiscal 2000..........................15
             Fiscal 2000 compared with fiscal 1999..........................21
             Foreign operations and foreign currency transactions...........26
      B.  Liquidity and capital resources...................................26
          Liquidity.........................................................26
          Capital resources.................................................26
      C.  Research and development, patents and licenses, etc...............27
      D.  Trend information.................................................27
          Critical accounting policy........................................27
          Looking forward...................................................28

Item 6. Directors, Senior Management and Employees..........................30

      A.  Directors and senior management...................................30
      B.  Compensation......................................................34
      C.  Board practices...................................................34
      D.  Employees.........................................................34
      E.  Share ownership...................................................35

Item 7. Major Shareholders and Related Party Transactions...................35

      A.  Major shareholders................................................35
      B.  Related party transactions........................................36
      C.  Interests of experts and counsel..................................36

                                       i


<PAGE>



Item 8. Financial Information...............................................36

      A.  Consolidated statements and other financial information...........36
          Consolidated statements...........................................36
          Legal proceedings.................................................36
          Dividend policy...................................................36
      B.  Significant changes...............................................37

Item 9. The Offer and Listing...............................................37

      A.  Offer and listing details.........................................37
          Trading in domestic markets.......................................37
          Trading in foreign markets........................................37
      B.  Plan of distribution..............................................38
      C.  Markets...........................................................38

Item 10. Additional Information.............................................38

      A.  Share capital.....................................................38
      B.  Memorandum and articles of association............................38
      C.  Material contracts................................................38
      D.  Exchange controls.................................................39
      E.  Taxation..........................................................40
      F.  Dividends and paying agents.......................................42
      G.  Statement by experts..............................................42
      H.  Documents on display..............................................42
      I.  Subsidiary information............................................42

Item 11. Quantitative and Qualitative Disclosures About Market Risk.........43

          Market risk exposures.............................................43
          Equity price risk.................................................43
          Foreign exchange and interest rate risk...........................43

Item 12. Description of Securities Other than Equity Securities.............46

                                    PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies....................47

Item 14. Material Modifications to the Rights of Security Holders
         and Use of Proceeds................................................47

Item 15. [Reserved].........................................................48

Item 16. [Reserved].........................................................48

                                    PART III

Item 17. Financial Statements...............................................49

          Independent Auditors' Report......................................50
          Consolidated Balance Sheets.......................................51
          Consolidated Statements of Income.................................52
          Consolidated Statements of Stockholders' Equity...................53
          Consolidated Statements of Cash Flows.............................54
          Notes to Consolidated Financial Statements........................56
          Valuation and Qualifying Accounts.................................89

Item 18. Financial Statements...............................................90

Item 19. Financial Statements and Exhibits..................................90

SIGNATURES..................................................................91

EXHIBIT INDEX...............................................................92

REGULATION FOR HANDLING OF SHARES OF CANON INC..............................93

ARTICLES OF INCORPORATION OF CANON INC......................................99

                                       ii


<PAGE>



CERTAIN DEFINED TERMS, CONVENTIONS AND PRESENTATION OF FINANCIAL INFORMATION

All information contained in this Report is as of December 31, 2001 unless
otherwise specified.

As used herein, "Canon" and the "Company" refer to Canon Inc. and its
subsidiaries and Canon Inc., respectively, unless the context otherwise
indicates.

On March 29, 2002, the noon buying rate for yen in New York City as reported by
the Federal Reserve Bank of New York was Yen132.70 = U.S.$1.

The Company's fiscal year end is December 31. In this Annual Report "fiscal
2001" refers to the Company's fiscal year ended December 31, 2001, and other
fiscal years of the Company are referred to in a corresponding manner.


FORWARD-LOOKING INFORMATION

This Annual Report contains forward-looking statements and information relating
to Canon that are based on beliefs of its management as well as assumptions
made by and information currently available to Canon Inc. When used in this
document, the words "anticipate," "believe," "estimate," "expect," "intend,"
"may," "plan," "project" and "should" and similar expressions, as they relate
to Canon or its management, are intended to identify forward-looking
statements. Such statements reflect the current views and assumptions of the
Company with respect to future events and are subject to risks and
uncertainties. Many factors could cause the actual results, performance or
achievements of Canon to be materially different from any future results,
performance or achievements that may be expressed or implied by such
forward-looking statements, including, among others, changes in general
economic and business conditions, changes in currency exchange rates and
interest rates, introduction of competing products by other companies, lack of
acceptance of new products or services by Canon's targeted customers, inability
to meet efficiency and cost reduction objectives, changes in business strategy
and various other factors, both referenced and not referenced in this Annual
Report. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected, intended, planned or projected. Canon Inc. does not intend or assume
any obligation to update these forward-looking statements.


                                       1
<PAGE>



                                     PART I

Item 1. Identity of Directors, Senior Management and Advisers

     Not applicable.

Item 2. Offer Statistics and Expected Timetable

     Not applicable.

Item 3. Key Information

     A. Selected financial data

     The following selected consolidated financial data has been derived from
the consolidated financial statements of Canon as of each of the dates and for
each of the periods indicated below. This information should be read in
conjunction with and qualified in its entirety by reference to the Consolidated
Financial Statements of Canon Inc. and subsidiaries, including the notes
thereto, included in this Annual Report, which have been audited by KPMG,
independent accountants.

<TABLE>
Selected financial data *1:              2001               2000               1999                1998               1997
--------------------------         --------------    ---------------    ---------------    ---------------   ---------------
                                            (Millions of yen except average number of shares and per share data)
<S>                                <C>               <C>                <C>                <C>              <C>
Net sales..................        Yen  2,907,573    Yen   2,696,420    Yen   2,530,896    Yen   2,736,084   Yen   2,669,534
Operating profit...........               281,839            234,131            168,344            254,932           266,336
Income before cumulative
  effect of change
  in accounting principle...              163,869            134,088             70,234            109,569           118,813
Net income.................               167,561            134,088             70,234            109,569           118,813
Advertising................                66,837             67,840             67,544             76,911            75,800
Research and development...               218,616            194,552            177,922            176,967           170,793
Depreciation...............               147,286            144,043            155,682            159,888           137,777
Capital expenditure........               207,674            170,986            200,386            221,401           219,779
Long-term debt.............                95,526            142,925            165,277            180,320           226,889
Common stock...............               165,287            164,796            163,969            163,033           160,411
Stockholders' equity.......             1,458,476          1,298,914          1,202,003          1,155,520         1,109,511
Total assets...............             2,844,756          2,832,125          2,587,532          2,728,329         2,872,779

Average number of shares
 (Thousands)...............               875,960            872,606            870,699            868,916           862,664

Per share data:
Income before cumulative effect of change in accounting principle:
 Basic..........................   Yen     187.07    Yen      153.66    Yen       80.66    Yen      126.10   Yen      137.73
 Diluted........................           184.55             151.51              79.50             123.93            134.60
Net income:
 Basic..........................   Yen     191.29    Yen      153.66    Yen       80.66    Yen      126.10   Yen      137.73
 Diluted........................           188.70             151.51              79.50             123.93            134.60
Cash dividends declared.........            25.00              21.00              17.00              17.00             17.00
Cash dividends declared (US$)*2.   $        0.196    $         0.179    $         0.164    $         0.134   $         0.134
</TABLE>

Notes:

     1.   The above financial data are provided in conformity with accounting
          principles generally accepted in the United States of America.

     2.   Annual cash dividends declared (US$) translated from yen based on a
          weighted average of the noon buying rates for yen in New York city as
          reported by the Federal Reserve Bank of New York in effect on the
          date of each semiannual dividend payment.

     The following table provides the noon buying rates for Japanese yen in New
York City as reported by the Federal Reserve Bank of New York expressed in
Japanese yen per $1.00 during the periods indicated and the high and low noon
buying rates for Japanese yen per $1.00 during the months indicated.

                                       2


<PAGE>


<TABLE>
Yen exchange rates per U.S. dollar:             Average          Term end         High           Low
-------------------------------------         -----------      -----------    -----------    -----------
<S>                                            <C>             <C>              <C>            <C>
1997.......................................   Yen  121.85      Yen  130.45    Yen  111.42    Yen  131.08
1998.......................................        130.88           113.08         113.08         147.14
1999.......................................        112.79           102.16         101.53         124.45
2000.......................................        108.37           114.35         101.70         114.62
2001 -Year.................................        122.18           131.04         114.26         131.47
     -1(st) half...........................                         124.73         114.26         126.75
     -July.................................                         125.00         122.85         125.85
     -Aug..................................                         118.75         118.75         124.87
     -Sept.................................                         119.23         115.89         121.08
     -Oct..................................                         122.54         120.20         122.99
     -Nov..................................                         123.22         119.98         124.44
     -Dec..................................                         131.04         123.90         131.47
2002 -Jan..................................                         134.06         130.93         134.64
     -Feb..................................                         133.96         132.26         134.77
     -Mar..................................                         132.70         127.07         133.46
     -Apr..................................                         128.45         128.13         133.40
     -May..................................                         124.13         123.08         128.66
</TABLE>


     B. Capitalization and indebtedness

          Not applicable.

     C. Reasons for the offer and use of proceeds

          Not applicable.

     D. Risk factors

     Canon is a high-technology oriented company which operates globally and
has numerous core businesses. Canon is subject to risks including economic and
foreign exchange rate risks, industry and business risks and financial risks,
particularly in its principal markets, North America, Europe and Japan. These
risks are described below:

     o    Because the demand for information technology products is highly
          cyclical, Canon's sales of business machines may be adversely
          affected by any downturn in the demand for information technology
          products.

     o    Sales of steppers and aligners depend heavily on the amount of
          capital investment on DRAM production facilities by semiconductor
          manufacturers. Such capital investment would be adversely affected by
          a price decline of DRAM, which would adversely affect our sales of
          steppers and aligners.

     o    Canon's camera business and a substantial portion of its printer
          business depend upon seasonal consumer spending.

     o    As a result of the cyclical changes in the demand for business
          machines, changes in capital expenditure on DRAM production
          facilities and the seasonal changes in consumer spending, Canon's net
          sales may fluctuate significantly.

     o    If Canon fails to continue developing and marketing products that
          incorporate new technology on a timely basis, its performance will be
          adversely affected.

     o    Canon sells laser beam printers on an original equipment
          manufacturing (OEM) basis to Hewlett-Packard Co. Such sales
          constituted approximately 21% of consolidated net sales for the year
          ended December 31, 2001. Canon's operating results could be
          significantly and adversely affected by a reduction or loss of that
          business.

     o    The market for traditional imaging products, such as analog copying
          machines and silver-halide cameras, is experiencing declining demand,
          which could cause Canon's sales to decline and harm its operating
          results.

     o    The digital camera business in which Canon operates is highly
          competitive.

     o    Canon's business for steppers and aligners relies on a limited number
          of customers and suppliers.

                                       3
<PAGE>


     o    Canon is subject to increasing financial and reputational risks due
          to product quality and liability issues. Though Canon makes efforts
          to prevent these issues in advance, there is no assurance that Canon
          will be able to completely eliminate occurrences of the
          aforementioned issues. Occurrences of such issues may adversely
          affect our business and financial condition.

     o    Canon's success depends on the value of its brand name, and if the
          value of the brand name were to diminish, its revenues, operating
          results and prospects would be adversely affected.

     o    Failure to adequately protect the intellectual property rights upon
          which Canon depends could harm Canon's business.

     o    Defending against intellectual property claims by others could harm
          Canon's business.

     o    Canon is dependent on the attraction and retention of key personnel
          and highly qualified professionals.

     o    Canon's physical facilities and information systems and securities
          are subject to damage as a result of disasters, outages or similar
          events.

     o    Canon's performance would be adversely affected by an economic
          decline in North America, Europe and Japan.

     o    A significant economic downturn in North America, Europe or Japan
          would intensify competitive pricing pressure, especially in consumer
          products such as printers and cameras, which could adversely affect
          Canon's profitability.

     o    A large percentage of Canon's products are manufactured at domestic
          plants for overseas distribution. Fluctuations in foreign exchange
          rates may have a significant and adverse impact on Canon's operating
          results.

     o    Although ameliorated by foreign exchange contracts, Canon's
          international operations and foreign currency indebtedness expose
          Canon to the risk of foreign currency exchange rate fluctuations.
          Fluctuations in foreign currency exchange rates could substantially
          and adversely affect our international operations and our
          expenditures made servicing our foreign currency denominated debts.

     o    Although ameliorated by derivative instruments, Canon is exposed to
          the market risk of interest rate fluctuations, primarily due to
          variable interest rate debt obligations. An increase in interest
          rates would increase expenditures made servicing these debts.

     o    Canon holds marketable securities and marketable investments, which
          exposes it to equity price risks. A downturn in the market for these
          instruments could adversely affect their value resulting in losses.

     o    Canon's business is subject to environmental laws and regulations,
          including though associated with the use and handling of hazardous
          substances, waste disposal, product recycling, wastewater discharges
          and ground-water contamination.

Item 4. Information on the Company

     A. History and development of the Company

     Canon Inc. is a corporation (kabushiki kaisha) formed under Japanese law.
Our principal place of business is at 30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo
146-8501, Japan. The telephone number is +81-3-3758-2111.

     The Company was incorporated under the laws of Japan in 1937 to produce
and sell Japan's first focal plane shutter 35mm still camera, which was
developed by its predecessor company, Precision Optical Research Laboratories,
which was organized in 1933.

     In the late 1950s, Canon entered the business machines field utilizing
technology obtained through the development of photographic and optical
products. With the successful introduction of electronic calculators in 1964,
Canon continued to expand its operations to include plain paper copying
machines, faxes, laser beam printers, bubble jet printers, computers, video
camcorders and digital cameras.

     The following are important events in the development of Canon's business
in recent years.
                                       4
<PAGE>


     o    In 1999, Canon and Toshiba Corporation agreed to collaborate on
          developing and establishing mass-production technologies for SEDs
          (surface-conduction electron-emitter displays) with potential in
          large-screen wall-mounted displays.

     o    In 1999, Oita Canon Materials Inc. was established as an integrated
          production site for chemical products for business machines in Oita,
          Japan.

     o    In 1999, the Canon Inc. Ayase Office was established with the goal of
          reinforcing the R&D structure for semiconductor-related devices in
          Kanagawa, Japan.

     o    In 2000, the Canon Inc. Optics R&D Center, an R&D facility for
          optical technology, was established in Tochigi, Japan.

     o    In 2000, Canon listed its American Depository Receipts (ADRs) on the
          New York Stock Exchange (NYSE).

     o    On April 2001, Canon Vietnam Co., Ltd. was established as a
          production site for bubble jet printers in Hanoi, Vietnam.

     o    On June 2001, Canon Zhongshan Business Machines Co., Ltd. was
          established as a production site for laser beam printers in
          Zhongshan, China.

     o    On September 2001, Canon (Suzhou) Inc. was established as a
          production site for digital copying machines and digital
          multifunction devices in Suzhou, China.

     On January 31, 2002, Canon Inc.'s Board of Directors adopted a resolution
to separate the Ueno Chemical Products Plant into a newly established
wholly-owned subsidiary, Ueno Canon Materials Inc., and transfer such business
to the new company, effective April 1.

     Canon Inc. and Canon Components, Inc. (CCI) executed a Share Exchange
Agreement that provides for making CCI a wholly-owned subsidiary of Canon Inc.
as of May 1, 2002, through a share exchange in accordance with a Memorandum of
Understanding executed on January 31, 2002.

     On March 6, 2002, Canon Inc. announced the closing of Canon Business
Machines, Inc. (CBM) of Costa Mesa, California, a manufacturer and CBM's
subsidiary in Tijuana, Mexico, Canon Business Machines de Mexico, S.A. de C.V.
Both companies were engaged in the production of Canon's ink jet printers and
related consumable supplies. The companies ceased operations at the end of May
2002, and will be liquidated.

     In fiscal 2001, 2000 and 1999, Canon's capital expenditures were Yen207,674
million, Yen170,986 million and Yen200,386 million respectively. In 2001, major
capital expenditure included mainly the construction of a new corporate
headquarters office and the expansion of manufacturing facilities to enable
increased production of semiconductor production equipment in Japan. For the
fiscal 2002 Canon projected that its capital expenditures would amount to
approximately Yen205,000 million. It consists principally of facilities for
production of the next-generation semiconductor production equipment and the
development of new electronic devices in Japan. Canon anticipates that funds
needed to fulfill these capital expenditures will be generated internally
through operations.

     B. Business overview

     Canon is one of the world's leading manufacturers of plain paper copying
machines, laser beam printers, bubble jet printers, cameras and steppers.

     Canon sells its products principally under the Canon brand name and
through sales subsidiaries. Each of these subsidiaries is responsible for
marketing and distribution to retail dealers in an assigned territory.
Approximately 71% of the consolidated net sales in fiscal 2001 were generated
outside Japan; approximately 34% in the Americas, 28% in Europe and 9% in other
areas.

     Canon's strategy is to develop innovative, high value-added products which
incorporate advanced technologies. Listed below are some of Canon's most
innovative products:

     o    In 1968, Canon developed the first plain paper copying machine using
          alternative technology to the xerographic process;

     o    In 1976, Canon developed the 35mm single-lens reflex (SLR) camera
          with a built-in microcomputer;

                                       5
<PAGE>


     o    In 1982, Canon developed the small and light plain paper copying
          machine incorporating a replaceable cartridge for easy maintenance; o
          In 1983, Canon developed the compact laser beam printer;

     o    In 1987, Canon developed the digital laser full-color plain paper
          copying machine;

     o    In 1988, Canon developed the color bubble jet copying machine
          utilizing Canon's original bubble jet printing technology;

     o    In 1990, Canon developed the notebook-sized bubble jet printer with a
          replaceable cartridge;

     o    In 1992, Canon developed the digital integration copying machine;

     o    In 1996, Canon developed the Advanced Photo System (APS) cameras;

     o    In 1998, Canon developed the CXDI-11 x-ray digital camera, a medical
          imaging product with a Large Area New-MIS sensor and TFT sensor
          (LANMIT); and

     o    In 2000, Canon developed the iR3250, new-generation networked digital
          multifunction devices which provided document collation and
          distribution function.

     Canon's research and development activities range from basic research to
product-oriented research directed at keeping and increasing the technological
leadership of Canon's products in the market.

     Canon manufactures the majority of its products in Japan, but in an effort
to reduce currency exchange risks and production cost, Canon has increased
overseas production and the use of local parts. Canon has manufacturing
subsidiaries in the United States, Germany, France, Taiwan, China, Malaysia,
Thailand and Vietnam, and a manufacturing joint ventures in Korea.

     As a concerned member of the world community, Canon emphasizes recycling,
and has increased its use of clean energy sources and cleaner manufacturing
processes. Canon has also adopted programs to collect and recycle used
cartridges and to refurbish used copy machines. In addition, Canon has
completely removed certain environmentally unfriendly chemicals from its
manufacturing processes.

Products

     Canon's products are divided into the following three product groups:
business machines, cameras, and optical and other products.

     Business machines

     The business machines product group is divided into three sub-groups
consisting of copying machines, computer peripherals and business systems.

     Copying machines

     Canon manufactures, markets and services a wide range of copying machines,
including analog copying machines, digital copying machines, full-color digital
copying machines and personal copying machines.

     The office-use market is subject to rapid change, and customer preferences
continue to shift from analog copying machines to high-speed digital products.
To respond this trend Canon has strengthened its lineup of digital
multifunction devices (MFDs) of 16 to 105 copy-per-minute in the imageRUNNER
(iR) series, which have versatile functions, such as copying, printing,
scanning and data-sharing functions on the Internet and intranets. Canon is
also marketing diverse expansion modules, software and business solutions to
increase customer value.

     Canon has a powerful line of full-color copying machines for users from
professional graphic designers to business offices. The trend in printing
industry is gradually moving away from large-lot printing using expensive
machinery to small-lot printing on demand (POD) and personalized printing.
Canon's high-end MFDs and full-color digital copying machines can be applied to
the POD market.

     Canon has dominant market share in monochrome copying machines for
personal use. Expanding demand for analog products is shown in Asia, Russia and
Eastern Europe. Canon also introduced new digital product in Western market in
response to the shift in demand toward digital products

     The copying machines category also includes the related sales of paper and
chemicals, service charges and sales of replacement parts.

                                       6
<PAGE>


     Computer peripherals

     Computer peripherals include laser beam printers (LBPs), bubble jet (BJ)
printers and scanners.

     Developed and fostered by Canon, laser beam printers are the de facto
standard output peripherals for offices. Canon's LBPs are relatively small in
size and have high-quality printing capabilities attributable to Canon's
expertise in laser beam printing and plain paper copying technologies. Canon's
adoption of a user-replaceable toner cartridge system containing optical
components makes its LBPs easy to maintain. Most of Canon LBP sales are on an
OEM basis. Canon also distributes Canon Brand LBP in Japan, Europe and Oceania
market.

     As the inventor of bubble jet printing technology, Canon continues to
provide customers with the best performance the technology has to offer. The
rising popularity of broadband data communication and digital cameras is
creating new demand for faster output of first-rate images. In response, Canon
has developed bubble jet printers with ultrahigh-density print heads and
bi-directional printing to provide the ultimate in printing speed and image
quality. Canon's adoption of an independent ink tank system for each color of
ink, allowing users to change only those inks that run out, reduces
printer-running costs.

     Canon markets a wide variety of products for a spectrum of user needs,
including image scanners in CanoScan N series using Contact Image Sensor,
scanners with charge-coupled devices (CCDs) for high resolution that can also
scan film in the CanoScan D series, and film scanners that handle both 35 mm
film and APS cartridge. Canon has deployed its expertise to develop
space-saving, energy-efficient scanners, as well as easy PC connection via USB
interface.

      Business systems

     Business systems primarily consists of fax machines, document scanners and
personal information products. Also included is work stations and personal
computers.

     Canon produces a broad range of fax machines, from high performance
machines for business use to small and economical machines for personal use.
Canon has incorporated its laser beam and Bubble Jet printing technologies into
small and full-scale office-use facsimile machines. Canon offers
easy-to-operate, high-speed Super G3 and ISDN (G4) models and ultrahigh-speed
models that can simultaneously use two distinct fax lines. Canon also offer
flatbed multifunction facsimile machines, sold under the MultiPASS brand name,
with copying, printing and scanning functions in addition to faxing. The entire
lineup is renowned for its low energy consumption and low noise.

     With the movement toward digitalization, the need to scan documents into
text data or image data is expanding. Canon's document scanners rapidly and
efficiently digitize large volumes of information on paper. Canon offers a wide
range of scanner models, color capable compact sheetfed types and a flatbed
model suitable for book-type documents. Canon also offers a hybrid model that
can create microfilm records while digitizing the information. Canon's diverse
lineup meets increased demands for digitizing office documents to share across
Inter/intranet platforms or to capture data from forms with OCR.

     Canon's calculator operations, from development to production and
marketing, are centered in Hong Kong. The Canon tradition of technological
innovation, which made possible the world's first 10-key desktop calculator in
1964, has been inherited by its personal information products, from calculators
with printers to electronic dictionaries. Canon continues to develop distinct,
appealing personal information products that accurately reflect trends and
demand.

     The work stations and personal computers sold by Canon are manufactured by
third parties under the manufacturers' own brand names.

     Cameras

     Canon manufactures and markets a wide range of 35mm focal plane shutter
cameras with interchangeable lenses, 35mm leaf shutter cameras with fixed
lenses (L/S), APS cameras and digital cameras. Canon also manufactures and
markets video camcorders, lenses and various camera accessories.

     Canon's SLR cameras are designed to meet needs from amateurs to
professionals. These cameras incorporate innovative technologies such as
45-point area autofocus, eye-controlled autofocus, depth-of field control,
Base-stored Image Sensor, the CMOS sensor, and a fully electronic mount system
to transmit between the lens and camera chassis. Canon also offers a
comprehensive line-up of compact cameras to satisfy the needs of users
everywhere, from models with high-performance zoom lenses to models with large
enhanced viewfinders and full water resistance.

                                       7
<PAGE>



     Canon provides full line-up video camcorders from versatile, compact and
stylish models to its flagship models for professionals. Canon's video
camcorders come equipped with optical Image Stabilizer, RGB primary color
filters, progressive -scan CCDs.And an adoption of megapixel CCDs, SD memory
cards and USB connectivity expand the user's creative possibilities.

     Digital cameras are rapidly becoming common tools to input images into
PCs. In addition to ensuring the best possible image quality throughout its
lineup, Canon offers compact digital cameras that are easy to use and to carry.
Canon also offers a high-end model with a high-image-quality CCD and zoom
functions, as well as the EOS D series of digital SLR cameras, compatible with
EF series lenses. Canon's CP series of dye-sublimation photo printers lets
users output digital photos without having to use a PC, thereby creating a new
photo-processing culture for digital camera users.

     Optical and other products

     Canon's optical and other products includes semiconductor production
equipment, broadcasting lenses, medical equipment and electronic components.

     Semiconductor production equipment includes steppers, aligners and tools
necessary for semiconductor chip production. Canon has commercialized a Krypton
Fluoride (KrF) excimer-laser steppers, an Argon Fluoride (ArF) excimer-laser
scanning steppers, mask aligner and so on. At the top of its class, the
FPA-5000AS3 ArF excimer laser scanning stepper has 0.10-micron precision and
can be used to manufacture 4Gb DRAMs. And Canon is involved in developing
next-generation products, using F2 lasers and X-rays.

     Broadcasting lenses used to capture images from sports and news events,
concerts and studio broadcasts. Canon is the world leader in television
broadcasting lenses.

     Medical equipments include X-ray cameras, retinal cameras, autofractmeters
and image-processing equipments for computerized diagnostic systems. Canon's
pioneering digital radiography system takes X-ray photography and medical
diagnosis into the digital age.

     Other products such as electronic components, which are magnetic heads for
audio and video tape recorders and micro-motors for printers and other
components, which are sold primarily to equipment manufactures. Canon has also
been developing a cost efficient solar-power system that incorporates amorphous
silicon technology which is used Canon's high-end monochrome copying machines.

Marketing and distribution

     Canon sells its products primarily through subsidiaries with
responsibility for specific geographic areas. Each subsidiary is responsible
for its own market research and for determining its sales channels, advertising
and promotional activities.

     In Japan, Canon sells its products primarily through Canon Sales Co., Inc.,
mainly to dealers and retail outlets.

     In the Americas, Canon sells its products primarily through Canon U.S.A.,
Inc., Canon Canada, Inc. and Canon Latin America, Inc., to retail outlets. Some
copying machine sales are made directly to end-users and a portion of other
business machine sales are made through distributors.

     In Europe, Canon sells its products primarily through Canon Europa N.V.,
Which sells primarily through subsidiaries or independent distributors to
dealers And retail outlets in each locality. In addition, copying machines are
sold directly to end-users by Canon (U.K.) Ltd. in the United Kingdom, by Canon
Deutschland GmbH in Germany and by Canon France S.A. in France.

     In Southeast Asia and Oceania, Canon sells its products through
subsidiaries located in those areas. On January 2002, Canon reorganized its
sales organization in Asia as Canon Asia Marketing Group to reinforce regional
operations.

     Canon also sells laser beam printers on an OEM basis to Hewlett-Packard
Co. Hewlett-Packard Co. resells these printers under the "hp LaserJet" and "hp
color LaserJet" name. During the year ended December 31, 2001, such sales
constituted approximately 21% of consolidated net sales.

                                       8


<PAGE>



Service

     In Japan and overseas, product service is provided in part by independent
retail outlets and designated service centers that receive technical training
assistance from Canon. Canon also services its products directly.

     Most of Canon's business machines carry warranties of varying terms
depending upon the model and the country of sale. Cameras and camera
accessories carry a one-year warranty against defective materials and
workmanship.

     Canon services its copying machines and supplies replacement drums, parts,
toner and paper. In Japan, most customers enter into a maintenance service
contract under which Canon provides maintenance services, replacement drums and
parts in return for a per-copy charge. Copying machines not covered by a
service contract may be serviced from time to time by Canon or local dealers
for a fee.

Net sales by product group and region of origination

<TABLE>
                                                               Years ended December 31
                               -------------------------------------------------------------------------------------
Net sales by product group               2001                            2000                          1999
----------------------------   ------------------------       ------------------------      ------------------------
                                                        (Millions of yen except percentage data)
<S>                             <C>                 <C>          <C>              <C>            <C>           <C>
Business machines:
   Copying machines.........   Yen   891,814      30.7%       Yen   772,557      28.7%       Yen   787,359      31.1%
   Computer peripherals.....       1,025,352      35.3            1,022,994      37.9              938,651      37.1
   Business systems.........         306,323      10.5              314,859      11.7              351,076      13.9
                               -------------     ------       -------------     ------       -------------    ------
Total business machines.....       2,223,489      76.5            2,110,410      78.3            2,077,086      82.1
Cameras.....................         381,367      13.1              318,234      11.8              273,126      10.8
Optical and other products..         302,717      10.4              267,776       9.9              180,684       7.1
                               -------------     ------       -------------     ------       -------------    ------
     Total..................   Yen 2,907,573     100.0%       Yen 2,696,420     100.0%       Yen 2,530,896     100.0%
                               =============     ======       =============     ======       =============    ======
</TABLE>
<TABLE>
                                                                 Years ended December 31
                                                  -----------------------------------------------------
Net sales by region of origination                     2001               2000               1999
------------------------------------              --------------    ----------------    ---------------
                                                                    (Millions of yen)
<S>                                               <C>                <C>                <C>
Net sales to unaffiliated customers:
 Japan........................................    Yen    858,580     Yen    832,297     Yen    754,208
 Americas.....................................           983,561            889,377            864,080
 Europe.......................................           805,243            753,979            732,053
 Others.......................................           260,189            220,767            180,555
                                                  --------------     --------------     --------------
   Total......................................    Yen  2,907,573     Yen  2,696,420     Yen  2,530,896
                                                  ==============     ==============     ==============
Intercompany transfers to regions:
 Japan........................................    Yen  1,378,031     Yen  1,345,983     Yen  1,205,021
 Americas.....................................            17,475             11,748             14,468
 Europe.......................................             2,449              3,782              3,645
 Others.......................................           299,410            246,024            179,527
                                                  --------------     --------------     --------------
 Eliminations.................................        (1,697,365)        (1,607,537)        (1,402,661)
                                                  --------------     --------------     --------------
   Total......................................                 -                  -                  -
                                                  ==============     ==============     ==============
Total net sales and transfers:
 Japan........................................    Yen  2,236,611     Yen  2,178,280     Yen  1,959,229
 Americas.....................................         1,001,036            901,125            878,548
 Europe.......................................           807,692            757,761            735,698
 Others.......................................           559,599            466,791            360,082
                                                  --------------     --------------     --------------
 Eliminations.................................        (1,697,365)        (1,607,537)        (1,402,661)
                                                  --------------     --------------     --------------
   Total......................................    Yen  2,907,573     Yen  2,696,420     Yen  2,530,896
                                                  ==============     ==============     ==============
</TABLE>

Note: Net sales by region of origination is determined by the location of the
      company, Canon or its subsidiary, originating the sale.

Total operating profit by category is discussed in Item 5A "Operating Results".

                                       9
<PAGE>

Seasonality

     Canon's sales for the 4th quarter period are usually higher than other
three quarters mainly owing to strong demand for consumer products, such as
cameras and bubble jet printers, during the year-end holiday.

Sources of supply

     Canon purchases a variety of parts and raw materials, such as glass,
aluminum, plastic, steel and chemicals for use in product manufacturing. All
finished and semi-finished products purchased from outside sources are produced
in accordance with Canon's designs and specifications. To reduce production
cost, Canon has increased purchase from overseas suppliers. The most important
parts purchased by Canon are LSIs which are used in most of its products. Some
of the circuits are manufactured in-house. Canon has not experienced any
difficulty obtaining parts or raw materials and believes that it will be able
to continue to obtain the same in sufficient quantities to meet its needs.

Competition

     Canon encounters intense competition in all areas of its business activity
throughout the world. Canon's competitors range from some of the world's major
multinational corporations to smaller, highly specialized companies. Canon
competes in a number of different business areas, whereas many of its
competitors are relatively more focused on one or more individual industries.
Consequently, Canon may face significant competition from entities that apply
greater financial, technological, sales and marketing or other resources than
Canon to their activities in a particular market segment.

     The principal elements of competition which Canon faces in each of its
markets are technology, quality, reliability, performance, price and customer
service and support. Canon believes that much of its ability to compete
effectively depends on conducting successful research and development
activities that enable it to create new or improved products and release them
on a timely basis and at commercially attractive prices.

     The competitive environments in which each product group operates are
described below:

     o    Business machines

     The markets for copying machines, computer peripherals and business
systems are highly competitive. Canon's primary competitors in these markets
are Xerox Corporation, Hewlett-Packard Company, Lexmark International Group
Inc., Ricoh Company Ltd., and Epson Corporation. Canon believes that it is one
of the leading global manufacturers of copying machines, laser beam printers,
bubble jet printers, image scanners and facsimile machines. In addition to the
general elements of competition described above, Canon's ability to compete
successfully in these markets also depends significantly on whether it can
provide effective, broad-based "business solutions" to its customers that solve
multiple interrelated client needs. In particular, the ability to provide
equipment and software that connect effectively to computer networks (ranging
in scope from local area networks to the Internet) is often a key to Canon's
competitive strength in these markets.

     o    Cameras

     Competition in the camera industry is intense, with many established
market participants offering similar products. Canon's primary competitors in
conventional film cameras are Nikon Corporation, Minolta Co., Ltd., ASAHI
Optical Co., Ltd., Olympus Optical Co., Ltd., and Fuji Photo Film Co., Ltd.
Canon's primary competitors in the digital cameras are Sony Corporation, Fuji
Photo Film Co., Ltd., Olympus Optical Co., Ltd., Nikon Corporation and Eastman
Kodak Company, while its primary competitors in the digital video camcorders
are Sony Corporation, Victor Company of Japan Ltd. and Matsushita Electric
Industrial Co., Ltd. Canon believes that developing cameras with increasingly
high resolution and faster image processing are critical aspects to its ability
to remain competitive in the fast-growing digital camera market segment.

     o    Steppers and Aligners

     The market for steppers and aligners, used in the manufacture of
semiconductor devices and LCDs, is highly competitive. The market is
characterized by a relatively small number of dominant suppliers, since the
development of steppers and aligners requires extremely precise design and
manufacturing techniques and, as a result, very high levels of capital
investment. Canon's primary competitors in the market for steppers and aligners
are Nikon Corporation and ASML Holding N.V. Because of the substantial capital
expenditures required to install and integrate equipment into a semiconductor
production line, semiconductor manufacturers tend to purchase

                                       10
<PAGE>

their stepper and aligner production equipment from the vendor that originally
constructed the chip fabrication facility. Canon competes principally on its
ability to meet and exceed product specifications, including resolution and
throughput, quality, reliability and system maintenance cost. Because of the
very rapid pace of technological innovation in the semiconductor industry,
Canon also believes that its ability to provide new products on a timely basis
is also a key competitive consideration for customers seeking to integrate
stepper and aligner production systems into the planning and design of their
new facilities.

Patents and Licenses

     Canon hold a large number of patents and a large number of patents
applications pending in Japan and abroad. According to the Statistical Report
issued by U.S. Patent and Trademark Office annually, Canon has been
consistently ranked as second or third in recent years in terms of the number
of patents issued in the United States showing a high profile among
technology-oriented companies.

     Canon has granted to various Japanese and foreign companies particularly
in areas such as electro- photography, Laser Beam Printers, Multi-function
Printers and Facsimiles.

     Canon has also entered into cross-licensing agreements with a number of
companies, including IBM Corporation in the area of information handling
system, Xerox Corporation in the area of business machines and Eastman Kodak
Co. in areas of electro-photography and image processing technology.

     Canon licenses many Japanese and foreign patents. And Canon also owns
various copyrights and a license to use certain copyrights.

     Although Canon considers its patents, copyrights, licenses and other
intellectual property rights to be important to its business, and the effective
management of its portfolio of intellectual property rights to be an important
objective, it does not believe that its business, as a whole, is dependent on
any particular patent, copyright, license or intellectual property rights or
group of related patents, copyrights, licenses or intellectual property rights.

Regarding The Environment

     Canon is not aware of any sites that may have an adverse material effect
on its liquidity, financial position or results of operations. It is difficult
to estimate future environmental expenditure because of the many uncertainties
involved, including the future status of the law, regulations, technology and
information. Nevertheless, Canon believes that capital expenditure and expenses
incurred in complying with current laws for environmental protection will not
have a material effect upon its liquidity, financial position or results of
operations,

     C. Organizational structure

     The following table lists the significant subsidiaries owned by Canon.

<TABLE>
                                                                  Proportion of    Proportion of
                                                               ownership interest   voting power
Name of company                  Head office location                 owned            held
--------------------------   ------------------------------    ------------------  -------------
<S>                          <C>                                     <C>              <C>
Canon Sales Co., Inc.....    Tokyo, Japan                             50.1%            50.7%

Canon U.S.A., Inc........    New York, U.S.A.                        100.0%           100.0%

Canon Europa N.V.........    Amstelveen, The Netherlands             100.0%           100.0%
</TABLE>


                                       11

<PAGE>


     D. Property, plants and equipment

          Canon's manufacturing is conducted primarily at 17 plants in Japan
and 13 plants in other countries. Canon owns all of the buildings and the land
on which its plants are located, with the exception of certain leases of land
and floor space of certain of its subsidiaries. The names and locations of
Canon's plants and other facilities, their approximate floor space and the
principal activities and products manufactured therein as at December 31, 2001
are as follows:


<TABLE>
Name and location                          Floor space      Principal activities and products manufactured
                                           (including
                                          leased space)
---------------------------------         -------------     ---------------------------------------------------
            Domestic                      (Thousands of
                                          square feet)
<S>                                           <C>          <C>
Shimomaruko Headquarters, Tokyo                   1,623    Develop business machines and cameras; prosecute
  (corporate headquarters)                                 patents; conduct purchasing, quality assurance,
                                                           research, and planning for production engineering and
                                                           technology

Canon Research Center, Kanagawa                     137    Conduct research and development (R&D) of basic and
                                                           advanced technologies for future businesses

Ecology Research Center, Kyoto                       92    Conduct R&D in environmental technologies

Hiratsuka Developmental Center,                     466    Conduct R&D in electronic devices and display
Kanagawa

Ayase Office,                                       314    Conduct R&D in semiconductor devices
Kanagawa

Kosugi Office,                                      398    Conduct R&D in software and systems
Kanagawa

Fuji-Susono Research Park,                          988    Conduct R&D in electrophotographic technologies
Shizuoka

Optics Technology Research Center,                  187    Conduct R&D in optics technologies
Tochigi

Tamagawa Plant, Kanagawa                            422    Produce bubble jet printer consumables

Fukushima Plant, Fukushima                          735    Produce business machines, primarily bubble jet
                                                           printers

Toride Plant, Ibaraki                             2,440    Conduct R&D in electrophotographic technologies,
                                                           Mass-production trials and support, and produce
                                                           copying machines and laser beam printer consumables

Ueno Plant, Mie                                     544    Produce copying machines and laser beam printer
                                                           consumables

Ami Plant, Ibaraki                                1,182    Produce business machines, tools, production
                                                           equipments and optical products

Utsunomiya Plant,                                 1,572    Produce camera lenses and optical products; develop
Tochigi                                                    optical products

Canon Electronics Inc. Plants,                    1,004    Produce laser beam printers, laser beam printer units,
Saitama and Gunma                                          magnetic components, micrographics

Copyer Co., Ltd. Plants,                            615    Produce copying machines and copying machine
Tokyo, Yamanashi and Fukui                                 consumables

Canon Precision Inc. Plants,                        781    Produce micro-motors, precision parts, metal mold
Tokyo, Aomori and Fukushima                                parts and laser beam printer consumables

Canon Aptex Inc. Plants,                            649    Produce copying machine parts and accessories,
Ibaraki and Tokyo                                          bubble jet color card and label printers

</TABLE>


                                       12
<PAGE>



<TABLE>
Name and location                          Floor space      Principal activities and products manufactured
                                           (including
                                          leased space)
---------------------------------         -------------     ---------------------------------------------------
            Domestic                      (Thousands of
                                          square feet)
<S>                                           <C>                <C>

Canon Chemicals Inc. Plants,                      1,476    Produce copying machine and laser beam printer
Ibaraki                                                    consumables

Canon Components Inc. Plant,                        734    Produce contact image sensors, bubble jet printer
Saitama                                                    consumables and printed circuits

Oita Canon Inc. Plant,                              323    Produce 35mm and APS cameras, digital video
Oita                                                       camcorders and digital cameras

Nagahama Canon Inc. Plant,                          952    Produce laser beam printers, laser beam printer consumables
Shiga                                                      bubble jet printer consumables and solar panels

Canon N.T.C., Inc. Plant,                         2,411    Produce parts for business machines
Ibaraki

Oita Canon Material Co., Ltd. Plant,              1,115    Produce copying machine and laser beam printer
Oita                                                       consumables

Nisca Corporation Plant,                            742    Produce copying machine parts and accessories
Yamanashi
</TABLE>








                                       13


<PAGE>



<TABLE>
Name and location                          Floor space     Principal activities and products manufactured
                                            (including
                                           leased space)
---------------------------------         -------------     ---------------------------------------------------
            Overseas                      (Thousands of
                                          square feet)
<S>                                            <C>                <C>
Canon Virginia, Inc. Plants,                      1,069    Produce copying machines and laser beam printers;
Newport News and Tappahannock,                             refurbish copying machines
Virginia, U.S.

Canon Business Machines, Inc. Plants,               503    Develop and manufacture bubble jet printers;
Costa Mesa, California, U.S. and                           manufacture copying machine supplies
Tijuana, B.C., Mexico

Canon Giessen BmbH Plant,                           184    Produce copying machines, copying machine
Giessen, Germany                                           consumables and bubble jet printer consumables

Canon Bretagne S.A. Plant,                          506    Produce copying machines, copying machine
Liffre, France                                             consumables and laser beam printers

Canon Inc., Taiwan Plant,                           432    Develop and manufacture 35mm SLR cameras and leaf
Taiwan                                                     shutter cameras; manufacture APS cameras

Canon Opto (Malaysia) Sdn. Bhd.                     554    Produce leaf shutters, APS cameras, video camcorders
Plant Selangor, Malaysia                                   and camera lenses

Canon Dalian Business Machines, Inc.              1,039    Produce laser beam printers and laser beam printer
Plant,                                                     consumables
Dalian, China

Canon Zhuhai, Inc. Plant,                           765    Produce leaf shutter cameras, laser beam printers
and
Zhuhai, China                                              fax machines

Tianjin Canon Co., Ltd. Plant,                      156    Produce copying machines
Tianjin, China

Guang-Dong United Optical Instrument                 14    Produce leaf shutter cameras
Co. Plant,
Guang Dong, China

Canon Hi-Tech (Thailand) Ltd. Plant,                875    Produce copying machines, bubble jet printers and fax
Phra Nakhon Sri Ayutthaya, Thailand                        machines

Canon Engineering (Thailand) Ltd.                   128    Produce business machine part molds
Plant,
Phra Nakhon Sri Ayutthaya, Thailand

Canon Zhongshan Business Machines Co., Ltd.         374    Produce laser beam printers
Plant,
Zhongshan, China

</TABLE>


     Canon considers its manufacturing and other facilities to be well
maintained and believes that its plant capacity is adequate for its current
requirements.

     At December 31, 2001, book value Yen10,713 of land, buildings and related
equipment were subject to mortgages securing Yen4,488 million of Canon's
indebtedness.

     On January 2001, Canon Vietnam Co., Ltd. was established in Hanoi, Vietnam,
for the production of bubble jet printers. The facility, with 280 thousands of
square feet of floor space, will be constructed within a recently opened
industrial complex. Canon Vietnam is scheduled to begin operation in 2002.

     On September 2001, Canon (Suzhou) Inc. was also established as a
production site for digital copying machines and digital multifunction devices
in Suzhou, China. Canon (Suzhou) Inc. is scheduled to begin operation in 2002
and its approximate floor space will be 940 thousands of square feet.

                                       14
<PAGE>



Item 5. Operating and Financial Review and Prospects

     A. Operating Results

General

     The following discussion and analysis provides information that management
believes to be relevant to understanding Canon's consolidated financial
condition and result of operations. This discussion should be read in
conjunction with the Consolidated Financial Statements of Canon Inc. and
Subsidiaries, including the notes thereto, included in this Annual Report.

Overview

     Canon is one of the world's leading manufacturers of plain paper copying
machines, laser beam printers, bubble jet printers, cameras and steppers. Canon
earns revenues mainly from the manufacture and sale of these products
domestically and internationally.

     On a consolidated basis, Canon divides its businesses into three product
groups: business machines, cameras and optical and other products.

     o    The business machine product group includes copying machines,
          computer peripherals and business systems. Copying machines include
          analog, digital, color and personal models. Computer peripherals
          include mainly laser beam printers, bubble jet printers and scanners.
          Business systems include fax machines, micrographic equipment,
          personal computers and calculators.

     o    The camera product group includes cameras, video camcorders and
          digital cameras.

     o    The optical and other products product group includes steppers and
          aligners for semiconductor chip production, television broadcasting
          lenses and medical equipment.

     Overseas operations are significant to Canon's operating results. Overseas
operations generated 70.5% of our total net sales in fiscal 2001. Such sales
are denominated in the applicable local currency and are subject to
fluctuations in the value of the yen in relation to such other currencies.
Despite efforts to reduce the impact of currency fluctuations on operating
results, including by localizing some manufacturing and by procuring parts and
materials from overseas suppliers, Canon believes such fluctuations have had a
significant effect on our results of operations.

     Cost of sales reflects principally the cost of raw materials and labor
used by Canon in the manufacture of its products. A portion of the raw
materials used by Canon is imported or includes imported materials. Such raw
materials are subject to fluctuations in world market prices and exchange rates
that may affect Canon's cost of sales. Other components of cost of sales
include depreciation expenses from plants, maintenance expenses, light and fuel
expenses and rent expenses.

     The major components of selling, general and administrative expenses are
payroll, advertising expenses and sales promotion expenses.

     In the following discussion, certain reclassifications have been made to
the presentation of the consolidated financial statements of previous years to
conform to the presentation used for the year ended December 31, 2001. For
details of the reclassifications, please refer to note (1)(u)to consolidated
financial statements, "Accounting for Sales Incentives" and note (1)(w) to
consolidated financial statements, "Reclassifications".

Consolidated result of operations

     Fiscal 2001 compared with fiscal 2000

     Canon recorded its second consecutive year of record consolidated net
sales and net income mainly due to depreciation of the yen during fiscal 2001.
In fiscal 2001, Canon achieved a 7.8% growth in sales, to Yen2,907,573 million,
and a 25.0% increase in net income, to Yen167,561 million.

                                       15
<PAGE>



     Summarized results of operations for fiscal 2001 and fiscal 2000 are as
follows:

<TABLE>
                                        2001            Change         2000
                                   ---------------    ---------   --------------
                                          (Million of yen except per share
                                             amounts and percentage data)
<S>                               <C>                 <C>        <C>
Net sales.......................    Yen  2,907,573     +  7.8%   Yen  2,696,420
Operating profit................           281,839     + 20.4           234,131
Income before income taxes......           281,566     + 23.9           227,196
Income before cumulative effect of
 change in accounting principle.           163,869     + 22.2           134,088
Net income......................           167,561     + 25.0           134,088

Earnings per share:
  Income before cumulative effect of change in accounting principle:
      Basic.....................            187.07     + 21.7            153.66
      Diluted...................            184.55     + 21.8            151.51
  Net income:
      Basic.....................            191.29     + 24.5            153.66
      Diluted...................            188.70     + 24.5            151.51

</TABLE>

-----------
Note: See note of Item 3A  "Selected Financial Data".

     Sales

     The global economy in 2001 reflected the following trends. The U.S.
economy showed a rapid downturn in the latter half of the year, resulting from
the continuing effects of the collapse of the IT bubble combined with the
negative economic impact of the tragedy of September 11. In Europe, economic
stagnation intensified due to the weakened U.S. economy and throughout Asia,
with the exception of China, the economic climate was also sluggish. The
Japanese economy also remained stagnant, reflecting flat consumer spending
along with a decrease in exports and IT-related capital spending.

     The markets in which the Canon Group operates reflected the following
trends. Within the IT-related equipment segment, unfavorable consumer spending
levels in Japan and the United States resulted in reduced demand for
personal-use printers while corporate-use digital copying machines and printers
generally posted favorable results. The digital camera market continued to show
strong growth, boosted by the launch of several new products by digital camera
makers. In the field of semiconductor-production equipment, memory device
manufacturers continued to exercise restraint with regard to capital
expenditures, reflecting the lack of demand for memory devices. The average
value of the yen in 2001 was Yen122 to the U.S. dollar, and Yen109 to the euro;
a depreciation of 11% and 9%, respectively, compared with the previous year.

     Amid these conditions, Canon recorded 7.8% growth in sales, to
Yen2,907,573 million. This growth reflected increased sales of copying
machines, digital cameras and semiconductor production equipment offsetting
decline in other product lines. As for semiconductor production equipment,
there is some lag time between order and revenue recognition. The lower value
of the yen produced most of the overall increase in sales. Using average 2000
exchange rates, fiscal 2001 net sales would have increased 0.2% from fiscal
2000.

                                       16
<PAGE>


     Canon's sales by product group are summarized as follows:

<TABLE>
                                  2001             Change            2000
                             --------------      --------      -------------
                                   (Million of yen except percentage data)
<S>                           <C>              <C>             <C>
Business machines:
      Copying machines.....  Yen    891,814      +  15.4%      Yen   772,557
      Computer peripherals.       1,025,352      +   0.2           1,022,994
      Business systems.....         306,323      -   2.7             314,859
                             --------------      --------      -------------
    Total business machines       2,223,489      +   5.4           2,110,410
                             --------------      --------      -------------
Cameras....................         381,367      +  19.8             318,234
Optical and other products.         302,717      +  13.0             267,776
                             --------------      --------      -------------
      Total................  Yen  2,907,573      +   7.8%      Yen 2,696,420
                             ==============      ========      =============
</TABLE>

     Sales of business machines (copying machines, computer peripherals and
business systems), constituting 76.5% of consolidated net sales, increased
5.4%, to Yen2,223,489 million in fiscal 2001.

     Sales of copying machines (including digital, color, office and personal
models) increased 15.4%, to Yen891,814 million in fiscal 2001 mainly due to an
increase in unit sales volume of high performance models. Canon completed its
lineup of 16 to 105 copy-per-minute digital black and white copying machines in
the imageRUNNER (iR) series in fiscal 2001 with the launch of the iR3300, iR105
and iR1600/2000 machines, which followed the introduction of the iR5000/6000
series the year before. The new lineup bolstered the competitive strength of
Canon copiers and contributed to substantial growth within the black and white
copying machine segment. Strong performances by the CLC5000 and CLC1150 color
copying machines further supported growth in sales.

     Sales of computer peripherals (mainly laser beam printers, bubble jet
printers and scanners) increased 0.2%, to Yen1,025,352 million. Unit sales of
laser beam printers and bubble jet printers declined slightly in the U.S. and
European markets despite the introduction of new models. The lower value of the
yen, however, offset the decline.

     Sales of business systems (including facsimile machines, computers,
micrographics and calculators) decreased 2.7%, to Yen306,323 million in fiscal
2001 mainly due to a decrease in unit sales volumes. This decrease reflected
the negative influence of severe price competition in the facsimile market and
declining PC sales in the domestic market, partially offset by the impact of
the decline in value of the yen.

     Sales of cameras increased 19.8%, to Yen381,367 million. While sales from
35mm and Advanced Photo System camera sales declined in fiscal 2001, mainly due
to a decrease in the number of units sold caused by the increasing popularity
of digital models and price competition, sales revenue from digital cameras
nearly doubled compared with the previous year primarily due to an increase in
the number of units sold. During the year, Canon launched six new
PowerShot-series digital camera models, spanning the range from low-end to
high-end, and two new ultracompact PowerShot- DIGITAL ELPH-series (DIGITAL IXUS
in other regions) models. These eight new products succeeded in garnering
greater market share in terms of units sold for Canon and contributed to
increased revenues from digital camera sales. Sales revenues from video
camcorders also continued to show substantial growth primarily due to an
increase in the profitability of these products, spurred by the introduction of
such new models as the high-end flagship XL-1S and ultra-compact Elura 10/20
(MV4 in other regions). Cameras constituted 13.1% of consolidated net sales in
fiscal 2001.

     Sales of optical and other products (including steppers and aligners for
semiconductor chip production, TV broadcasting lenses, medical equipment and
digital radiography systems) increased 13.0%, to Yen302,717 million. Although
the aggregate volume of orders from semiconductor manufacturers declined,
reflecting the sluggish memory device market, sales revenue from optical and
other products continued to grow substantially in fiscal 2001 in terms of the
number of units sold, supported by active capital investment by semiconductor
device manufacturers through the end of fiscal 2000. After receiving order from
a customer, there is usually some lag time in order to complete the
installation of semiconductor production equipment. Canon expects that sales
revenue from semiconductor production equipment in 2002 will show major decline
due to this lag based on the aggregate volume of orders received in 2001.
Additionally, the new FPA-5000AS3 and FPA-5000ES3

                                       17
<PAGE>


scanning steppers were well received by the industry and affected new customers
for Canon. Optical and other products constituted 10.4% of consolidated net
sales in fiscal 2001.

     Net sales in fiscal 2001 increased in every area.
     In Japan, overall sales revenue increased 6.1% in fiscal 2001. Sales in
Japan of digital copying machines, digital cameras and semiconductor production
equipment grew significantly primarily due to increased volume of such sales.
In the Americas net sales decreased 2.1% on a local currency basis, though unit
sales of digital copying machines and digital cameras showed significant
growth. However, after offsetting for the depreciation of the yen, net sales in
Americas increased by 10.4% in fiscal 2001. Sales in Europe showed growth of
6.4% in fiscal 2001 primarily due to the depreciation of the yen and an
increase in sales volumes from digital copying machines, digital cameras and
semiconductor production equipment. Sales in other areas increased 8.4% in
fiscal 2001, reflecting significant increases in sales volumes of digital
cameras and laser beam printers. In the forth quarter of 2001, net sales in all
regions showed a decrease on a local currency basis, reflecting the weakened
world economies and declined orders of semiconductor equipment.

     A summary of net sales by region of destination is provided below:

                       2001                Change             2000
                 --------------           --------     --------------
                         (Million of yen except percentage data)

Japan.......     Yen    827,288           +   6.1%     Yen    779,366
Americas....            982,104           +  10.4             889,764
Europe......            806,104           +   6.4             757,942
Others......            292,077           +   8.4             269,348
                 --------------           --------     --------------
 Total......     Yen  2,907,573           +   7.8%     Yen  2,696,420
                 ==============           ========     ==============

Note: This summary of net sales by region of destination is determined by the
location of the customer.

     Earnings

     Operating profit in fiscal 2001 totaled Yen281,839 million, an increase of
20.4% from the previous year. Operating profit in fiscal 2001 was 9.7% of net
sales, compared with 8.7% in fiscal 2000.

     In fiscal 2001, the depreciation of the yen increased net sales by
approximately Yen206,000 million and increased cost of sales by approximately
Yen32,000 million. Canon's gross profit ratio during fiscal 2001 improved by
2.5% to 44.0%, primarily due to the net effect of the depreciation of the yen,
and also reflecting the positive effects of cost reductions, realized through
sustained production reorganization activities, such as the adoption of cell
production methods, combined with the lower value of the yen.

     Selling, general and administrative expenses rose 12.9% from the previous
year, and amounted to Yen998,775 million. An increase in R&D expenses,
resulting from an increase in R&D activities, and sales promotional expenses,
resulting from an increase in promotional activities, largely accounted for
this increase. To strengthen its R&D capabilities, Canon maintains a high level
of R&D expenditure. The depreciation of the yen also increased selling, general
and administrative expenses by approximately Yen36,500 million. In fiscal 2001,
Canon reclassified its loss on disposal of property, plant and equipment to
"Selling, general and administrative expenses," which had previously been
accounted for in "Other, net" of "Other income (deductions)." Canon made this
change due to the increase of the impact of disposal of property, plant and
equipment, as group restructuring and resource allocation proceeds, and
recurring disposals are expected in the future.


                                       18


<PAGE>



     The disclosures of segment information by product as required in Japan for
the years ended December 31, 2001 and fiscal 2000 and of segment information by
geographic area as required in Japan for the years ended December 31, 2001 and
fiscal 2000 are provided below.

     The following table provides segment information by product:

<TABLE>
                                                           As of / for the year ended December 31, 2001
                                    ------------------------------------------------------------------------------------------
                                       Business                        Optical and other      Corporate and
                                       machines         Cameras            products            eliminations       Consolidated
                                    -------------     ------------     ------------------     -------------       ------------
                                                                         (Millions of yen)
<S>                                 <C>               <C>             <C>                     <C>                 <C>
Net sales:
      Unaffiliated customers....    Yen  2,223,489    Yen  381,367           Yen  302,717                --     Yen  2,907,573
      Intersegment..............                --              --                116,748      Yen (116,748)                --
                                    --------------    ------------           ------------     -------------     --------------
      Total.....................         2,223,489         381,367                419,465          (116,748)         2,907,573
                                    --------------    ------------           ------------     -------------     --------------
Operating cost and expenses.....         1,888,571         345,223                395,615            (3,675)         2,625,734
                                    --------------    ------------           ------------     -------------     --------------
Operating profit................    Yen    334,918    Yen   36,144           Yen   23,850      Yen (113,073)    Yen    281,839
                                    ==============    ============           ============     =============     ==============
Assets..........................    Yen  1,280,949    Yen  215,173           Yen  361,799      Yen  986,835     Yen  2,844,756
Depreciation and amortization...           105,907          12,745                 15,291            18,357            152,300
Capital expenditure.............           121,333          16,871                 36,057            33,413            207,674

</TABLE>

<TABLE>
                                                            As of / for the year ended December 31, 2000
                                    -------------------------------------------------------------------------------------------
                                       Business                        Optical and other       Corporate and
                                       machines         Cameras             products            eliminations       Consolidated
                                    -------------     ------------     -----------------       --------------      ------------
                                                                         (Millions of yen)
<S>                                 <C>               <C>             <C>                      <C>                 <C>
Net sales:
      Unaffiliated customers....    Yen  2,110,410    Yen  318,234           Yen  267,776                --     Yen  2,696,420
      Intersegment..............                --              --                126,947      Yen (126,947)                --
                                    --------------    ------------           ------------     -------------     --------------
      Total.....................         2,110,410         318,234                394,723          (126,947)         2,696,420
                                    --------------    ------------           ------------     -------------     --------------
Operating cost and expenses.....         1,801,226         285,841                384,075            (8,853)         2,462,289
                                    --------------    ------------           ------------     -------------     --------------
Operating profit................    Yen    309,184    Yen   32,393           Yen   10,648      Yen (118,094)    Yen    234,131
                                    ==============    ============           ============     =============     ==============
Assets..........................    Yen  1,324,369    Yen  207,069           Yen  332,229      Yen  968,458     Yen  2,832,125
Depreciation and amortization...           101,557          14,480                 13,019            17,421            146,477
Capital expenditure.............           105,171          15,559                 20,509            29,747            170,986
</TABLE>

Notes:

     (1)  General corporate expenses of Yen 113,128 million in fiscal 2001 and
          Yen 118,180 million in fiscal 2000 are included in "Corporate and
          eliminations."

     (2)  Corporate assets of Yen 986,801 million in fiscal 2001 and Yen
          968,590 million in fiscal 2000 which mainly consist of cash and cash
          equivalents, marketable securities and corporate properties, are
          included in "Corporate and eliminations."

                                       19


<PAGE>



      The following table provides segment information by geographic area:

<TABLE>
                                                       As of / for the year ended December 31, 2001
                                    ------------------------------------------------------------------------------------------------
                                                                                                   Corporate and
                                         Japan         Americas        Europe         Others        eliminations     Consolidated
                                    --------------   -------------  -------------  ------------  -----------------  ---------------
                                                                            (Millions of yen)
<S>                                <C>               <C>             <C>           <C>                <C>               <C>
Net sales:
       Unaffiliated customers       Yen    858,580    Yen  983,561   Yen  805,243   Yen  260,189               --    Yen  2,907,573
         Intersegment........            1,378,031          17,475          2,449        299,410   Yen (1,697,365)               --
                                    --------------    ------------   ------------   ------------  ---------------    --------------
         Total...............            2,236,611       1,001,036        807,692        559,599       (1,697,365)        2,907,573
Operating cost and expenses..            1,893,448         969,630        806,495        546,291       (1,590,130)        2,625,734
                                    --------------    ------------   ------------   ------------  ---------------    --------------
Operating profit.............       Yen    343,163    Yen   31,406   Yen    1,197   Yen   13,308   Yen   (107,235)   Yen    281,839
                                    ==============    ============   ============   ============  ===============    ==============

Assets.......................       Yen  1,376,939    Yen  346,046   Yen  423,295   Yen  174,553   Yen    523,923    Yen  2,844,756
</TABLE>

<TABLE>
                                                       As of / for the year ended December 31, 2000
                                    ------------------------------------------------------------------------------------------------
                                                                                                   Corporate and
                                         Japan         Americas        Europe         Others        eliminations      Consolidated
                                    --------------   -------------  -------------  ------------  -----------------  ---------------
                                                                            (Millions of yen)
<S>                              <C>             <C>           <C>           <C>           <C>     <C>                <C>
Net sales:
       Unaffiliated customers       Yen    832,297    Yen  889,377   Yen  753,979   Yen  220,767               --    Yen  2,696,420
         Intersegment........            1,345,983          11,748          3,782        246,024   Yen (1,607,537)               --
                                    --------------    ------------   ------------   ------------  ---------------    --------------
         Total...............            2,178,280         901,125        757,761        466,791       (1,607,537)        2,696,420
Operating cost and expenses..            1,868,472         871,298        742,576        456,278       (1,476,335)        2,462,289
                                    --------------    ------------   ------------   ------------  ---------------    --------------
Operating profit.............       Yen    309,808    Yen   29,827   Yen   15,185   Yen   10,513   Yen   (131,202)   Yen    234,131
                                    ==============    ============   ============   ============  ===============    ==============

Assets.......................       Yen  1,482,335    Yen  353,919   Yen  407,258   Yen  158,729   Yen    429,884    Yen  2,832,125
</TABLE>
----------
Notes:

     (1)  General corporate expenses of Yen113,128 million in fiscal 2001 and
          Yen118,180 million in fiscal 2000 are included in "Corporate and
          eliminations."

     (2)  Corporate assets of Yen986,801 million in fiscal 2001 and Yen968,590
          million in fiscal 2000 which mainly consist of cash and cash
          equivalents, marketable securities and corporate properties, are
          included in "Corporate and eliminations."

     (3)  Segment information by geographic area is determined by the location
          of Canon or its relevant subsidiary.

     Operating profit for business machines in fiscal 2001 increased Yen25,734
to Yen334,918 million. Operating profit ratio also improved by 0.4% to 15.1%,
reflecting the positive effect of the weak yen and cost-cutting measures while
sales prices were affected by severe price competition in the market.

     Operating profit for cameras increased Yen3,751 million to yen36,144
Million due to the rapid growth of digital models, while operating profit ratio
declined 0.7% to 9.5% mainly because of the sharp decrease in unit sales of
conventional film cameras.

     Operating profit for optical and other products increased Yen13,202
million to Yen23,850 million. Operating profit ratio improved 3.0% to 5.7%,
which was due primarily to a substantial sales volume increase of semiconductor
production equipment, supported by active capital investment by semiconductor
device manufacturers through the end of fiscal 2000.

     Income before income taxes in fiscal 2001 was Yen281,566 million, a 23.9%
increase from fiscal 2000 and constituted 9.7% of net sales.


                                       20



<PAGE>



    In the area of other income (deductions), the promotion of cash flow
management has resulted in increased financial strength, realizing a Yen2,449
million improvement in interest income and expense. And on contribution of
securities to Canon's retirement benefit trust Canon recognized a gain of
Yen15,536 million. Currency exchange gains and losses increased Yen5,394
million while Canon's share of the net earnings of companies carried at equity
declined by Yen12,662 million due to the deteriorating profit margins of
affiliated companies in Singapore that manufacture memory devices led by the
sales price decline in the market. As a result, other income (deductions)
overall increased Yen6,662 million compared with the previous year.

Net income in fiscal 2001 was Yen167,561 million, an increase of 25.0% from the
previous year. This amount represents a 5.8% return on net sales. Income taxes
as a percent of income before income taxes rose by 2.5% to 40.9%. The increase
was largely attributable to decreased equity in income of affiliates.

     Fiscal 2000 compared with fiscal 1999

     Although appreciation of the yen had a negative impact in fiscal 2000,
sales increased 6.5% to Yen2,696,420 million in fiscal 2000 from Yen2,530,896
million in fiscal 1999. Net income increased 90.9% to Yen134,088 million in
fiscal 2000 from Yen70,234 million in fiscal 1999.

     Summarized results of operations for fiscal 2000 and fiscal 1999 are as
follows:

<TABLE>
                                        2000            Change         1999
                                   ---------------    ---------   --------------
                                          (Million of yen except per share
                                             amounts and percentage data)
<S>                               <C>                 <C>        <C>
Net sales.......................    Yen  2,696,420     +  6.5%   Yen  2,530,896
Operating profit................           234,131     + 39.1           168,344
Income before income taxes......           227,196     + 45.6           156,072
Net income......................           134,088     + 90.9            70,234

Net income per share:
      Basic.....................            153.66     + 90.5             80.66
      Diluted...................            151.51     + 90.6             79.50
</TABLE>

----------
Note: See note of Item 3A  "Selected Financial Data".

     Sales

     In fiscal 2000, the pace of economic growth in the United States remained
strong, even though signs of a slowdown were apparent in the later part of the
year. The condition of the European economy was also favorable, despite the low
value of the euro. The economy in Asian countries showed healthy expansion,
recovering from the economic sluggishness that had been seen a few years ago,
especially in Southeast Asia. In Japan, however, despite solid growth in
capital investment in the private sector, consumer spending remained slow, and
only a limited indications of recovery were seen.

     While the favorable global economy helped Canon expand sales, yen
appreciation had a negative impact on our operations. In fiscal 2000, the
approximate average exchange rate of the yen to the U.S. dollar was Yen108 and
to the euro was Yen99. These exchange rates reflected increases of 5% and 21%,
respectively, from fiscal 1999. In real terms, fiscal 2000 net sales increased
13.9% from fiscal 1999.This increase is mainly the result of strong demand for
digital copying machines in the business machine segment, a rapid expansion of
the digital camera market, and a semiconductor device demand that remained
strong throughout fiscal 2000.

                                       21


<PAGE>



     Canon's sales by product group are summarized as follows:

<TABLE>
                                  2000             Change            1999
                             --------------      --------      -------------
                                   (Million of yen except percentage data)
<S>                           <C>              <C>             <C>
Business machines:
      Copying machines.....  Yen    772,557      -   1.9%      Yen   787,359
      Computer peripherals.       1,022,994      +   9.0             938,651
      Business systems.....         314,859      -  10.3             351,076
                             --------------      --------      -------------
    Total business machines       2,110,410      +   1.6           2,077,086
                             --------------      --------      -------------
Cameras....................         318,234      +  16.5             273,126
Optical and other products.         267,776      +  48.2             180,684
                             --------------      --------      -------------
      Total................  Yen  2,696,420      +   6.5%      Yen 2,530,896
                             ==============      ========      =============
</TABLE>

     Sales of business machines constituted 78.3% of consolidated net sales in
fiscal 2000. Sales of business machines increased 1.6% to Yen2,110,410 million
in fiscal 2000 from Yen2,077,086 million in fiscal 1999.

     Sales of copying machines decreased 1.9% to Yen772,557 million in fiscal
2000 from Yen787,359 million in fiscal 1999. Although copying machine sales
increased 6.8% on a local currency basis reflecting strong worldwide demand
particularly for digital copying machines, a strong yen led to a slight decline
in these sales on a consolidated basis.

     Sales of computer peripherals increased 9.0% to Yen1,022,994 million in
fiscal 2000 from Yen938,651 million in fiscal 1999, primarily due to a strong
overseas market for laser beam printers.

     Sales of business systems decreased 10.3% to Yen314,859 million in fiscal
2000 from Yen351,076 million in fiscal 1999, primarily due to the strong yen
and intense price competition reducing sales of fax machines.

     Sales of cameras increased 16.5% to Yen318,234 million in fiscal 2000 from
Yen273,126 million in fiscal 1999, primarily due to the introduction of new
digital cameras and a rapid expansion of the market for digital cameras as well
as favorable video camcorder sales. Cameras contributed 11.8% to consolidated
net sales in fiscal 2000.

     Sales of optical and other products increased 48.2% to Yen267,776 million
in fiscal 2000 from Yen180,684 million in fiscal 1999 mainly attributable to
significant growth in stepper sales, stimulated by active capital investment by
semiconductor manufacturers in the healthy semiconductor market. Optical and
other products contributed 9.9% to consolidated net sales in fiscal 2000.

     A regional analysis indicates that net sales in fiscal 2000 increased in
each region. In Japan, overall sales increased 8.5% in fiscal 2000. In
particular, sales of bubble jet printers and digital cameras grew significantly
as a result of the introduction of attractive new products. Semiconductor
production equipment also registered substantial growth. In the Americas
market, sales of digital copying machines, digital video camcorders and
semiconductor production equipment were especially strong. Although sales in
the Americas grew 8.5% in U.S. dollar terms, the appreciation of the yen
reduced the growth rate to 2.9%. Sales in Europe grew 19.4% in euro terms.
However, the stronger yen reduced this growth rate to 2.8%. Sales of laser beam
printers, digital cameras and semiconductor production equipment mainly
supported the increase. Sales in other areas increased 28.0%, reflecting
significant sales increases of semiconductor production equipment in Korea and
Taiwan, and the economic recovery in many of the economies in these areas.

                                       22



<PAGE>



     A summary of net sales by region of destination is provided below:

                       2000                Change             1999
                 --------------           --------     --------------
                         (Million of yen except percentage data)

Japan.......     Yen    779,366           +   8.5%     Yen    718,513
Americas....            889,764           +   2.9             864,781
Europe......            757,942           +   2.8             737,140
Others......            269,348           +  28.0             210,462
                 --------------           --------     --------------
 Total......     Yen  2,696,420           +   6.5%     Yen  2,530,896
                 ==============           ========     ==============

Note: This summary of net sales by region of destination is determined by the
location of the customer.

     Earnings

     Operating profit increased 39.1% to Yen234,131 million in fiscal 2000 from
Yen168,344 million in fiscal 1999. Operating profit constituted 8.7% of net
sales in fiscal 2000. Although the appreciation of the yen had an adverse
effect on Canon's net sales by approximately Yen186,000 million, the gross
profit ratio rose from 40.8% in 1999 to 41.5% in fiscal 2000. This improvement
is mainly the result of the successful introduction of improved production
methods such as the cell production method, and also because of an increase in
sales of high value-added products.

     Selling, general and administrative expenses increased slightly to
Yen884,828 million in fiscal 2000 from Yen864,612 million in fiscal 1999.
Selling, general and administrative expenses constituted 32.8% of net sales in
fiscal 2000, an decrease of 1.3% from fiscal 1999. We incurred significant
expenses in connection with Canon's year 2000 commemorative activities, but our
active efforts to reduce other expenses helped Canon hold total selling,
general and administrative expenses to a slight increase. We increased R&D
expenditures by 9.3% to improve our technology and to support future growth.

                                       23


<PAGE>



     The disclosures of segment information by product as required in Japan as
of and for the years ended December 31, 2000 and 1999 and of segment
information by region as required in Japan as of and for the years ended
December 31, 2000 and 1999 are provided below.

     The following table provides segment information by product:

<TABLE>
                                                           As of / for the year ended December 31, 2000
                                    ------------------------------------------------------------------------------------------
                                       Business                        Optical and other      Corporate and
                                       machines         Cameras            products            eliminations       Consolidated
                                    -------------     ------------     ------------------     -------------       ------------
                                                                         (Millions of yen)
<S>                                 <C>               <C>             <C>                     <C>                 <C>
Net sales:
      Unaffiliated customers....    Yen  2,110,410    Yen  318,234           Yen  267,776                --     Yen  2,696,420
      Intersegment..............                --              --                126,947      Yen (126,947)                --
                                    --------------    ------------           ------------     -------------     --------------
      Total.....................         2,110,410         318,234                394,723          (126,947)         2,696,420
                                    --------------    ------------           ------------     -------------     --------------
Operating cost and expenses.....         1,801,226         285,841                384,075            (8,853)         2,462,289
                                    --------------    ------------           ------------     -------------     --------------
Operating profit................    Yen    309,184    Yen   32,393           Yen   10,648      Yen (118,094)    Yen    234,131
                                    ==============    ============           ============     =============     ==============
Assets..........................    Yen  1,324,369    Yen  207,069           Yen  332,229      Yen  968,458     Yen  2,832,125
Depreciation and amortization...           101,557          14,480                 13,019            17,421            146,477
Capital expenditure.............           105,171          15,559                 20,509            29,747            170,986

</TABLE>

<TABLE>
                                                            As of / for the year ended December 31, 1999
                                    -------------------------------------------------------------------------------------------
                                       Business                        Optical and other       Corporate and
                                       machines         Cameras             products            eliminations      Consolidated
                                    -------------     ------------     -----------------      --------------      -------------
                                                                         (Millions of yen)
<S>                                 <C>               <C>             <C>                    <C>                 <C>
Net sales:
      Unaffiliated customers....    Yen  2,077,086    Yen  273,126           Yen  180,684                --     Yen  2,530,896
      Intersegment..............                --              --                 79,413      Yen  (79,413)                --
                                    --------------    ------------           ------------     -------------     --------------
      Total.....................         2,077,086         273,126                260,097           (79,413)         2,530,896
                                    --------------    ------------           ------------     -------------     --------------
Operating cost and expenses.....         1,820,341         254,799                274,172            13,240          2,362,552
                                    --------------    ------------           ------------     -------------     --------------
Operating profit................    Yen    256,745    Yen   18,327           Yen  (14,075)     Yen  (92,653)    Yen    168,344
                                    ==============    ============           ============     =============     ==============
Assets..........................    Yen  1,256,667    Yen  155,204           Yen  252,071      Yen  923,590     Yen  2,587,532
Depreciation and amortization...           114,451          12,285                 12,860            18,515            158,111
Capital expenditure.............           143,269          12,880                 17,856            26,381            200,386
</TABLE>

Notes:

(1)  General corporate expenses of Yen118,180 million in fiscal 2000 and
     Yen92,637 million in fiscal 1999 are included in "Corporate and
     eliminations."

(2)  Corporate assets of Yen968,590 million in fiscal 2000 and Yen923,863
     million in fiscal 1999 which mainly consist of cash and cash equivalents,
     marketable securities and corporate properties, are included in "Corporate
     and eliminations."

                                       24


<PAGE>



      The following table provides segment information by geographic area:

<TABLE>
                                                       As of / for the year ended December 31, 2000
                                    ------------------------------------------------------------------------------------------------
                                                                                                   Corporate and
                                         Japan         Americas        Europe         Others        eliminations      Consolidated
                                    --------------   -------------  -------------  ------------  -----------------  ---------------
                                                                            (Millions of yen)
<S>                                <C>               <C>             <C>           <C>              <C>               <C>
Net sales:
       Unaffiliated customers       Yen    832,297    Yen  889,377   Yen  753,979   Yen  220,767               --    Yen  2,696,420
         Intersegment........            1,345,983          11,748          3,782        246,024   Yen (1,607,537)               --
                                    --------------    ------------   ------------   ------------  ---------------    --------------
         Total...............            2,178,280         901,125        757,761        466,791       (1,607,537)        2,696,420
Operating cost and expenses..            1,868,472         871,298        742,576        456,278       (1,476,335)        2,462,289
                                    --------------    ------------   ------------   ------------  ---------------    --------------
Operating profit.............       Yen    309,808    Yen   29,827   Yen   15,185   Yen   10,513   Yen   (131,202)   Yen    234,131
                                    ==============    ============   ============   ============  ===============    ==============

Assets.......................       Yen  1,482,335    Yen  353,919   Yen  407,258   Yen  158,729   Yen    429,884    Yen  2,832,125
</TABLE>

<TABLE>
                                                       As of / for the year ended December 31, 1999
                                    ------------------------------------------------------------------------------------------------
                                                                                                   Corporate and
                                         Japan         Americas        Europe         Others        eliminations      Consolidated
                                    --------------   -------------  -------------  ------------  -----------------  ---------------
                                                                            (Millions of yen)
<S>                              <C>             <C>           <C>           <C>           <C>      <C>               <C>
Net sales:
       Unaffiliated customers       Yen    754,208    Yen  864,080   Yen  732,053   Yen  180,555               --    Yen  2,530,896
         Intersegment........            1,205,021          14,468          3,645        179,527   Yen (1,402,661)               --
                                    --------------    ------------   ------------   ------------  ---------------    --------------
         Total...............            1,959,229         878,548        735,698        360,082       (1,402,661)        2,530,896
Operating cost and expenses..            1,761,544         850,400        722,147        349,623       (1,321,162)        2,362,552
                                    --------------    ------------   ------------   ------------  ---------------    --------------
Operating profit.............       Yen    197,685    Yen   28,148   Yen   13,551   Yen   10,459   Yen    (81,499)   Yen    168,344
                                    ==============    ============   ============   ============  ===============    ==============

Assets.......................       Yen  1,328,376    Yen  298,624   Yen  338,630   Yen  138,251   Yen    483,651    Yen  2,587,532
</TABLE>
----------
Notes:

(1)  General corporate expenses of Yen118,180 million in fiscal 2000 and
     Yen92,637 million in fiscal 1999 are included in "Corporate and
     eliminations."

(2)  Corporate assets of Yen968,590 million in fiscal 2000 and Yen923,863
     million in fiscal 1999 which mainly consist of cash and cash equivalents,
     marketable securities and corporate properties, are included in "Corporate
     and eliminations."

(3)  Segment information by geographic area is determined by the location of
     Canon or its relevant subsidiary.

          Operating profit for business machines increased Yen52,439 million to
     Yen309,184 million in fiscal 2000 from Yen256,745 million in fiscal 1999
     mainly due to increased sales of computer peripherals and improvements in
     our operating profit ratio, reflecting successful efforts to reduce
     production costs and selling expenses.

          Operating profit for cameras increased Yen14,066 million to Yen32,393
     million in fiscal 2000 from Yen18,327 million in fiscal 1999, reflecting
     improved profitability and strong sales of digital cameras and digital
     video camcorders.

          Operating profit for optical and other products increased to
     Yen10,648 million in fiscal 2000 compared with an operating loss of
     Yen14,075 in fiscal 1999. The improvement was mainly attributable to
     increased sales of semiconductor production equipment.

          Income before income taxes increased 45.6% to Yen227,196 million in
     fiscal 2000 from Yen156,072 million in fiscal 1999. Income before income
     taxes was 8.4% of net sales in fiscal 2000.

                                       25


<PAGE>


     Net of non-operating expenses decreased to Yen6,935 million in fiscal 2000
from Yen12,272 million in fiscal 1999, primarily due to a decrease in net
interest expenses and an increase in equity earnings of affiliates, partially
offset by an increase in foreign exchange losses. Net interest expenses
decreased to Yen3,590 million in fiscal 2000 from Yen10,134 million in fiscal
1999, primarily due to a decrease in short-term borrowings. The equity earnings
of affiliated companies increased to Yen10,817 million in fiscal 2000 compared
to an equity loss of Yen2,848 million in fiscal 1999. In comparison, foreign
exchange losses increased to Yen20,195 million in fiscal 2000 from Yen3,387
million in fiscal 1999.

     Net income increased 90.9% to Yen134,088 million in fiscal 2000 from
Yen70,234 million in fiscal 1999. Net income in fiscal 2000 represented a 5.0%
return on net sales. The effective rate of income taxes declined by 15.4% to
38.4% in fiscal 2000. The decrease was largely attributable to a reduction of
Japanese normal income tax rates of 5% and its effect on net deferred tax
assets.

     Foreign operations and foreign currency transactions

     Canon's marketing activities are performed by subsidiaries in each region
in local currencies, while the cost of goods sold is generally in yen. Given
Canon's current operating structure, appreciation of the yen has a negative
impact on net sales and the gross profit ratio. To reduce the financial risks
from changes in foreign exchange rates, Canon utilizes derivative financial
instruments, which are comprised principally of forward currency exchange
contracts.

     The return on foreign operation sales is usually lower than domestic
operations because foreign operations consist mainly of marketing activities.
The returns on foreign operation sales in fiscal 2001, 2000 and 1999 were 1.6%,
2.0% and 1.9%, respectively. This compares with return of 5.8%, 5.0% and 2.8%
on total operations for the respective years.

     B. Liquidity and capital resources

Liquidity

     Cash and cash equivalents in fiscal 2001 increased Yen12,272 million to
Yen 506,234 million, compared with Yen493,962 million in 2000 and Yen480,453
million in 1999.

     Despite the large increase in net income and significant reduction of
inventories, net cash provided by operating activities for 2001 decreased to
Yen305,752 million, compared with Yen346,616 million in 2000 and Yen308,917
million in 1999, mainly due to the increased payment of trade payables.

     Net cash used in investing activities, which mainly consists of capital
expenditure, for 2001 was Yen192,592 million, compared with Yen212,804 million
in 2000 and Yen200,982 million in 1999. See also "Capital resources".

     Net cash used in financing activities for 2001 amounted to Yen121,228
million, mainly as a result of repayment of short-term loans to improve Canon's
financial position, accompanied by the redemption of bonds, compared to
Yen100,597 million in 2000 and Yen122,823 million in 1999. Although ameliorated
by interest swap agreements, Canon is exposed to the market risk of interest
rate fluctuations, primarily due to variable interest rate debt obligations. An
increase in interest rates would increase expenditures required to service
these debt obligations.

     There are no significant solvency clauses in debt agreements and there are
no significant non-compliance with debt covenants.

     Canon can access various capital markets to make funding. Depending on
requirements and conditions, funding can be made through increase of share
capital, issuance of bonds or borrowings based on current creditability.

     Canon Inc., in common with most other Japanese corporations, does not
maintain committed bank credit lines. Canon and other Japanese companies have
relied for liquidity in part upon relationship with institutional lenders,
particularly Japanese commercial banks. Canon Inc. has bank overdraft
facilities approximately Yen1.5 billion with its principal commercial banks.
While Canon has been able to obtain funding from its traditional financing
sources and from the capital markets and believes it will continue to be able
to do so in the future, there can be no assurance that adverse economic or
other conditions will not affect Canon's liquidity or long-term funding in the
future.

                                       26
<PAGE>


Capital resources

     Capital expenditure in 2001 amounted to Yen207,674 million compared with
Yen170,986 million in 2000 and Yen200,386 million in 1999. In 2001, major
capital expenditure included mainly the construction of a new corporate
headquarters office and the expansion of manufacturing facilities to enable
increased production of semiconductor production equipment.

     At December 31, 2001, Canon had outstanding commitments of approximately
Yen51,446 million to purchase property, plant and equipment for use in the
ordinary course of its business. Canon anticipates that funds needed to fulfill
these commitments will be generated internally from operations.

     Working capital in 2001 increased Yen79,502 million, to Yen776,111
million, compared with Yen696,609 million in 2000 and Yen609,730 million in
1999. The increase was primarily attributable to the decrease of short-term
loans and trade payables. Canon believes its working capital will be sufficient
for its requirements for the foreseeable future. Canon's capital requirements
are primarily dependent on management's business plans regarding the levels and
timing of capital expenditures and investments

     The working capital ratio (current assets to current liabilities) for 2001
was 1.91, compared with 1.71 for 2000 and 1.70 for 1999.

     Return on assets rose to 5.9% in 2001, compared with 4.9% in 2000 and 2.6%
in 1999. This increase was due mainly to increased net income. Return on
stockholders' equity also rose to 12.2% in 2001, compared with 10.7% in 2000
and 6.0% in 1999.

     The debt ratio (total debt to total assets) declined to 10.4% in 2001 from
13.8% in 2000.

     For a discussion of financial instruments, see Note 18 "Disclosures about
the Fair Value of Financial Instruments" in Item 17 "Financial Statements".

     C. Research and development, patents and licenses, etc.

     Research and development (R&D) is an important aspect of Canon's
operations. Canon believes that the competitiveness and excellence of its
products can be attributed primarily to its research and development
activities.

     Canon employs approximately 7,300 R&D engineers and scientists who are
involved in the fields of precision mechanics, electronics, optics, applied
physics and organic and inorganic chemistry. Canon had research and development
expenditures of Yen218,616 million in fiscal 2001, Yen194,552 million in fiscal
2000 and Yen177,922 million in fiscal 1999. Canon's strategy emphasizes the
application of advanced technologies to competitive new products, the
improvement of manufacturing techniques and basic research for the future.

     Canon's R&D activities are conducted at following five primary centers:

     o    Core Technology Development Headquarters (where component engineering
          and base technology R&D, such as in new materials, nanotechnology and
          production engineering, is conducted);

     o    Platform Technology Development Headquarters (where platform
          technologies for digital network device R&D is conducted);

     o    Device Technology Development Headquarters (where key device R&D,
          such as for semiconductor devices, is conducted);

     o    Display Development Headquarters (where display devices R&D is
          conducted);

     o    Ecology Research Center (where solar cell battery R&D is conducted).

     In addition, Canon maintains R&D centers for each of its product
divisions.

     Canon generates a significant number of patented innovations every year.
The ownership of patents is important to Canon, but Canon does not believe that
the expiration of any single patent or group of related patents will materially
affect its business.

     D. Trend information

Critical Accounting Policies

     The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States, and based on the
selection and application of significant accounting policies, which require
management to make significant estimates and assumptions. Canon believes that
the following are some of the more critical judgment areas in the application
of its accounting policies that currently affect its financial condition and
results of operations.

                                       27
<PAGE>

     Collectibility of Receivables

     Canon is required to estimate the collectibility of its notes receivables
and accounts receivables. A considerable amount of judgment is required in
assessing the ultimate realization of these receivables including the current
creditworthiness of each customer taking into account business conditions,
turnover of receivables and financial positions for significant customers.
Significant changes in required reserves have been recorded in recent periods
and may occur in the future due to the current market environment. In case
financial quality of customers becomes worse, reserves for each customer will
increase and it adversely affects on net income.

     Deferred Tax Assets

     Canon currently has significant deferred tax assets, which are subject to
periodic recoverability assessments. Realization of Canon's deferred tax assets
is principally dependent upon its achievement of projected future taxable
income. Canon's judgments regarding future profitability may change due to
future market conditions, its ability to continue to successfully execute our
operating restructuring activities and other factors. These changes, if any,
may require possible recognition of significant valuation allowance to these
deferred tax asset balances. In cases where Canon believes that deferred tax
assets may not be recovered, unrecoverable amounts should be included in income
taxes in the statements of income and may adversely affect net income.

     Recoverability of Long-lived Assets and Identifiable Intangibles

     Canon's long-lived assets and certain identifiable intangibles are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount
of an asset to future net cash flows undiscounted and without interest changes
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. The determination of estimated future net cash flows
involves significant judgments. Changes in strategy and/or market conditions
could significantly impact these judgments and require impairment of recorded
asset balances that may adversely affect net income.

     Employee Retirement and Severance Benefit Plan

     Canon has significant employee retirement and severance benefit costs and
credits which are developed from actuarial valuations. Inherent in these
valuations are key assumptions including discount rates and expected return on
plan assets. Canon is required to consider current market conditions, including
changes in interest rates, in selecting these assumptions. Changes in the
related employee retirement and severance benefit costs or credits may occur in
the future in addition to changes resulting from fluctuations in Canon's
related headcount due to changes in the assumptions. Changes in assumptions
will affect Canon's financial figures. Decrease of discount rates leads to
increase of actuarial pension benefit obligations that could lead to increase
of amortization cost through amortization of actuarial gain or loss, and vice
versa. Increase of expected return on plan assets may decrease net periodic
benefit cost through increase of expected return amount while the difference
with actual fair value of those assets could affect adversely net income in the
following years, and vice versa.

     Looking forward

     The Canon Group is pursuing the goals set forth in Phase II of the
Excellent Global Corporation Plan (2001-2005). Canon will push forward with its
operating reorganization efforts, from R&D and production to head office
administrative operations, simultaneously targeting improved productivity and
the elimination of waste, along with the development and strengthening of
common basic technologies in support of product development to facilitate the
launch of advanced high value- added products ahead of its competition. Efforts
will also be focused on the in-house production of key components, key parts
and high-efficiency factory automation equipment to realize even greater cost
reductions. In marketing activities, Canon is working to expand and strengthen
its solutions business and is promoting the optimization of distribution
channels and back-office operations. Also, as the importance of environmentally
conscious products continues to increase, progress is being made in the
development of a technological infrastructure to support the design of such
products.

                                       28

<PAGE>




     Canon sells laser beam printers on an original equipment manufacturing
(OEM) basis to Hewlett-Packard Co. (HP). During the year ended December 31,
2001, such sales constituted approximately 21% of consolidated net sales.

     In May 2002, HP announced that it completed its merger transaction with
Compaq Computer Corporation. We believe that this merger will not directly
affect in an adverse and material way our OEM business. However, our operating
results could be significantly and adversely affected if HP's management
decides not to continue its OEM business relationship with Canon.

     On January 31, 2002, Canon Inc. and Canon Components, Inc. (CCI) executed
a memorandum of understanding to make CCI a wholly-owned subsidiary of Canon
through a share exchange, following resolutions by their respective board of
directors' meetings. CCI is already a consolidated subsidiary of Canon, and
therefore the impact of the share exchange on Canon's future consolidated
business results is not expected to be material.

     The foregoing discussion in Financial Overview contains forward-looking
statements that reflect management's current views with respect to certain
future events and financial performance. Actual results may differ materially
from those projected or implied in the forward-looking statements. Further,
certain forward- looking statements are based upon assumptions of future events
that may not prove to be accurate. The following important factors could cause
actual results to differ materially from those projected or implied in any
forward-looking statements: exchange rate fluctuations; the uncertainty of
Canon's ability to implement its plans to localize production and other
measures to reduce the impact of exchange rate fluctuations; uncertainty as to
economic condition in Canon's major markets; uncertainty of continued demand
for Canon's high-value-added products; uncertainty in the continued growth of
computer and related markets; uncertainty of increased demand for Canon's
semiconductor production equipment; Canon's ability to continue to develop
products and to market products that incorporate new technology on a timely
basis, are competitively priced and achieve market acceptance; the possibility
of losses resulting from foreign currency transactions designed to reduce
financial risks from changes in foreign exchange rates; and inventory risk due
to shifts in market demand.

                                       29


<PAGE>



Item 6. Directors, Senior Management and Employees

     A. Directors and senior management

     Directors and corporate auditors of the Company as of March 31, 2002 and
their respective business experience are listed below.

<TABLE>
----------------------------------------------------------------------------------------------------------------------------------
Name                Position                                     Date of                          Business experience
 (Date of birth)     (Group executive/function)                  commencement                (*current position/function)
-----------------   ------------------------------------        --------------  ----------------------------------------------
<S>                 <C>                                           <C>                <C>
Fujio Mitarai       President & C.E.O.                                  4/1961      Joined the Company
 (Sept. 23, 1935)                                                       1/1979      President of Canon U.S.A., Inc.
                                                                        3/1981      Director
                                                                        3/1985      Managing Director
                                                                        1/1989      In charge of HQ administration
                                                                        3/1989      Senior Managing Director
                                                                        3/1993      Executive Vice President
                                                                        9/1995      President & C.E.O.*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Ichiro Endo         Senior Managing Director                            4/1964      Joined the Company
   (Jan. 2, 1941)   (Technology Management HQ)                          1/1989      Group Executive of Research &
                                                                                      Development HQ
                                                                        3/1989      Director
                                                                        3/1995      Managing Director
                                                                        4/1995      Chief Executive of Office Imaging Products HQ
                                                                        4/1996      Group Executive of Product Development HQ
                                                                        3/1999      Senior Managing Director*
                                                                        7/1999      Group Executive of Platform Technology
                                                                                      Development HQ/Group Executive of Display
                                                                                      Development HQ*
                                                                        1/2000      Group Executive of Technology Management HQ*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Yukio Yamashita     Senior Managing Director                            3/1962      Joined the Company
   (May 15, 1939)   (Human  Resource  Management                        8/1980      President of Canon (U.K.) Ltd.
                    & Organization HQ)                                  3/1991      Director
                                                                        1/1996      Group Executive of Human Resource
                                                                                      Management & Organization HQ*
                                                                        3/1997      Managing Director
                                                                        3/1999      Senior Managing Director*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Toshizo Tanaka      Senior Managing Director                            4/1964      Joined the Company
   (Oct. 8, 1940)   (Finance & Accounting HQ)                           1/1992      Deputy Group Executive of Finance &
                                                                                      Accounting HQ
                                                                        3/1995      Director
                                                                        4/1995      Group Executive of Finance & Accounting HQ*
                                                                        3/1997      Managing Director
                                                                        3/2001      Senior Managing Director*
-----------------   ------------------------------------        --------------  ----------------------------------------------
</TABLE>


                                       30



<PAGE>



<TABLE>

----------------------------------------------------------------------------------------------------------------------------------
Name                Position                                     Date of                          Business experience
 (Date of birth)     (Group executive/function)                  commencement                (*current position/function)
-----------------   ------------------------------------        --------------  ----------------------------------------------
<S>                 <C>                                         <C>                <C>
Takashi Saito       Managing Director                                   4/1967      Joined the Company
  (Apr. 15, 1941)   (Internet Business Promotion HQ)                    1/1991      Deputy Chief Executive of Peripheral
                                                                                      Products HQ
                                                                        3/1991      Director
                                                                        7/1991      Deputy Group Executive of Computer &
                                                                                      Information Systems Operations HQ
                                                                       10/1991      Group Executive of B Products Operations HQ
                                                                        1/1993      Group Executive of BJ products HQ
                                                                        3/1996      Managing Director*
                                                                        7/1999      Group Executive of BJ Printer Products
                                                                                      Business Group/ In charge of promotion
                                                                                      of digital home business
                                                                        1/2000      Group Executive of Internet Business
                                                                                      Development HQ
                                                                        1/2001      Group Executive of Internet Business
                                                                                      Promotion HQ*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Yusuke Emura        Managing Director                                   4/1967      Joined the Company
  (Nov. 30, 1944)   (Production Management HQ)                          1/1989      Toride plant manager
                                                                        3/1993      Director
                                                                        4/1994      Ami plant manager
                                                                        4/1995      Deputy Chief Executive of Office Imaging
                                                                                      Products HQ
                                                                        4/1996      Chief Executive of Office Imaging Products HQ
                                                                        3/1999      Managing Director*
                                                                        4/1999      Group Executive of Production Management HQ
                                                                        1/2002      Group Executive of Global Environment
                                                                                      Promotion HQ*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Kinya Uchida        Managing Director                                   4/1963      Joined the Company
  (Nov. 21, 1938)                                                       6/1987      President of Canon Singapore Pte. Ltd.
                                                                        3/1995      Director
                                                                        4/1995      President of Canon France S.A.
                                                                        3/1999      Managing Director*
                                                                        4/1999      President of Canon U.S.A., Inc.*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Akira Tajima        Managing Director                                   4/1964      Joined the Company
   (Dec. 8, 1940)   (Optical Products HQ)                               7/1989      Deputy Chief Executive of Camera Operations HQ
                                                                        3/1995      Director
                                                                        4/1995      Chief Executive of Camera Operations HQ
                                                                        3/1999      Managing Director*
                                                                        4/1999      Chief Executive of Optical Products HQ*/
                                                                                      Group Executive of Semiconductor Production
                                                                                      Equipment Group
                                                                        7/1999      In charge of promotion of digital industry
                                                                                      business*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Nobuyoshi Tanaka    Managing Director                                   4/1970      Joined the Company
  (Dec. 23, 1945)   (Corporate Intellectual                             1/1991      Senior General Manager of Semiconductor
                      Property & Legal HQ)                                            Production Equipment Development Center
                                                                        3/1993      Director
                                                                        4/1993      Chief Executive of Optical Products HQ
                                                                        4/1999      Group Executive of Corporate Intellectual
                                                                                      Property & Legal HQ*
                                                                        3/2001      Managing Director*
-----------------   ------------------------------------        --------------  ----------------------------------------------

</TABLE>

                                       31



<PAGE>



<TABLE>

----------------------------------------------------------------------------------------------------------------------------------
Name                Position                                     Date of                          Business experience
 (Date of birth)     (Group executive/function)                  commencement                (*current position/function)
-----------------   ------------------------------------        --------------  ----------------------------------------------
<S>                 <C>                                         <C>                <C>
Tsuneji Uchida      Managing Director                                   4/1965      Joined the Company
  (Oct. 30, 1941)   (Image Communication Products                       4/1995      Group Executive of Lens Products Group
                    Operations HQ)                                      3/1997      Director
                                                                        4/1997      Deputy Chief Executive of Camera Operations HQ/
                                                                                      Group Executive of Photo Products Group
                                                                        4/1999      Chief Executive of Camera Operations HQ
                                                                        7/1999      In charge of promotion of digital photo
                                                                                      business
                                                                        1/2000      In charge of promotion of digital photo home
                                                                                      business
                                                                        1/2001      Chief Executive of Image Communications
                                                                                      Products HQ*
                                                                        3/2001      Managing Director*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Junji Ichikawa      Managing Director                                   4/1965      Joined Shiba Electronics Co., Ltd.
   (Feb. 9, 1943)   (Peripheral Products HQ)                            1/1970      Joined the Company
                                                                        4/1994      Group Executive of Peripheral Group 1
                                                                        3/1997      Director
                                                                        4/1997      Deputy Chief Executive of Peripheral Products
                                                                                      HQ
                                                                        4/2000      Chief Executive of Peripheral Products HQ*
                                                                        3/2001      Managing Director*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Hajime Tsuruoka     Managing Director                                   3/1970      Joined Meiji Seika Kaisha Ltd.
   (July 9, 1943)                                                      11/1973      Joined the Company
                                                                        4/1995      President of Canon Italia S.p.A.
                                                                        3/1997      Director
                                                                       10/1997      President of Canon Deutschland GmbH
                                                                        3/1999      President of Canon Europa N.V.*
                                                                        3/2001      Managing Director*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Toru Takahashi      Director                                            3/1966      Joined the Company
 (Sept. 11, 1942)                                                       1/1991      Deputy Chief Executive of Copying Machine
                                                                                      Operations/Deputy Chief Executive of Image
                                                                                      Systems Operations
                                                                        3/1991      Director*
                                                                        5/1992      Group Executive of Products Technology
                                                                                      Development HQ
                                                                        1/1993      Deputy Group Executive of Component
                                                                                      Development Operations HQ
                                                                        4/1995      Group Executive of Research & Development HQ
                                                                        7/1999      Executive Vice President of Canon U.S.A., Inc.*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Muneo Adachi        Director                                            4/1967      Joined the Company
  (Mar. 13, 1943)   (New Business HQ)                                   4/1996      Deputy Group Executive of Product
                                                                                      Development HQ
                                                                        3/1997      Director*
                                                                        7/1999      Group Executive of New Business HQ*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Teruomi Takahashi   Director                                            9/1971      Joined the Company
  (Jun. 10, 1943)   (I-Printer  Products HQ)                            4/1996      Deputy Chief Executive of Chemical Products HQ
                                                                        3/1999      Director*
                                                                        4/1999      Chief Executive of Chemical Products HQ
                                                                        2/2001      Chief Executive of I-Printer Products HQ*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Hironori Yamamoto   Director                                            4/1969      Joined the Company
  (Dec. 23, 1943)    (Core Technology Development HQ)                   1/1998      Deputy Group Executive of Production
                     (Display Development HQ)                                         Management HQ
                                                                        3/1999      Director*
                                                                        7/1999      Group Executive of Core Technology Development
                                                                                      HQ*/Deputy Group Executive of Display
                                                                                      Development HQ*
                                                                        7/2001      Chief Executive of Display Development HQ

</TABLE>


                                       32


<PAGE>



<TABLE>

----------------------------------------------------------------------------------------------------------------------------------
Name                Position                                     Date of                          Business experience
 (Date of birth)     (Group executive/function)                  commencement                (*current position/function)
-----------------   ------------------------------------        --------------  ----------------------------------------------
<S>                     <C>                                   <C>                <C>
Akiyoshi Moroe      Director                                            4/1968      Joined the Company
 (Sept. 28, 1944)   (General Affairs HQ)                                7/1996      Deputy Group of Executive of Human Resource
                    (Information and Communications                                   Management & Organization HQ
                    Systems HQ)                                         3/1999      Director*
                                                                        4/1999      Group Executive of General Affairs HQ*
                                                                       10/2000      Group Executive of Information & Communications
                                                                                      Systems HQ*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Kunio Watanabe      Director                                            4/1969      Joined the Company
   (Oct. 3, 1944)  (Corporate Strategy & Development HQ)                4/1995      Group Executive of Corporate Strategy and
                                                                                      Development HQ*
                                                                        3/1999      Director*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Ikuo Soma           Director                                            4/1970      Joined the Company
   (Aug. 4, 1946)   (Office Imaging Products HQ)                        1/1997      Group Executive of Office Imaging Products
                                                                                      Group 1
                                                                        3/1999      Director*
                                                                        4/1999      Chief Executive of Office Imaging Products HQ*
                                                                                      /Group Executive of Office Imaging Products
                                                                                      Group 2*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Yoroku Adachi       Director                                            4/1970      Joined the Company
  (Jan. 11, 1948)                                                       3/2001      Chairman of Canon Singapore Pte. Ltd.*
                                                                                      Director*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Yasuo Mitsuhashi    Director                                            4/1974      Joined the Company
   (Nov. 23 1949)   (Chemical Products HQ)                              2/2001      Chief Executive of Chemical Products HQ*
                                                                        3/2001      Director*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Kohtaro Miyagi      Corporate Auditor                                   4/1964      Joined the Company
  (Jun. 17, 1940)                                                       3/1991      President of Canon Australia Pty. Ltd.
                                                                        3/1995      Director
                                                                        4/1995      President of Canon Singapore Pte. Ltd.
                                                                        3/2001      Corporate Auditor*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Masaharu Aono       Corporate Auditor                                   4/1963      Joined the Company
   (Nov. 5, 1940)                                                       3/1995      Senior Managing Director of Canon
                                                                                      Chemicals Inc.
                                                                        3/2001      Corporate Auditor*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Tadashi Ohe         Corporate Auditor                                   4/1969      Registration as a lawyer*
   (May 20, 1944)                                                       4/1989      Instructor of Judicial Training Institution
                                                                        3/1994      Corporate Auditor, the
Comapny*
-----------------   ------------------------------------        --------------  ----------------------------------------------
Tetsuo Yoshizawa    Corporate Auditor                                   4/1968      Joined Dai-Ichi Mutual Life Insurance Co.
  (Sept. 5, 1945)                                                       4/1991      General Manager of Investment Planning
                                                                                      Division
                                                                        4/1992      General Manager Osaka of General Corporate
                                                                                      Group III
                                                                        4/1995      General Manager of Financing Corporate
                                                                                      Division
                                                                        3/1998      Corporate Auditor, the Company*
</TABLE>

     Directors and Corporate Auditors are elected at the annual meeting of
shareholders for a two-year and three-year term of office, respectively, and
may serve any number of consecutive terms. The current term of all Directors
expires in March 2003, and the current term of all Corporate Auditors expires
in March 2004, except Mr. Tadashi Ohe whose term expires in March 2003.

     There is no arrangement or understanding between any Director or Corporate
Auditor and any major shareholder, customer, supplier or other material
stakeholders in connection with such Director's or Corporate Auditor's
selection.

                                       33


<PAGE>



     B. Compensation

          (a)  In the fiscal year ended December 31, 2001, the company paid
               approximately Yen1,236 million, in total to Directors and
               Corporate Auditors. This amount includes bonuses but excludes
               retirement allowances.

          (b)  Directors and Corporate Auditors are not covered by the
               Company's retirement program. However, in accordance with
               customary Japanese business practices, Directors and Corporate
               Auditors receive lump-sum retirement benefits, subject to
               shareholder approval. The company paid retirement benefits
               aggregating Yen188 million to three Directors and two Corporate
               Auditors during the fiscal year ended December 31, 2001.

     The Company does not have a stock option plan for Directors, Corporate
Auditors or any other employees.

     C. Board practices

        See Item 6A "Directors and senior management" and Item 6B "
Compensation".

     D. Employees

     Following table lists the number of Canon's full-time employees as of
December 31, 2001, 2000 and 1999.

<TABLE>
                               Total     Japan     Americas    Europe    Others
                               -----     -----     --------    ------    ------
<S>                            <C>       <C>       <C>         <C>       <C>
December 31, 2001
Business machines..........    65,244    28,944      10,012    11,288    15,000
Cameras....................    12,562     4,314         412     1,154     6,682
Optical and other products.    10,653     6,893         351       305     3,104
Corporate..................     5,161     4,658         133       128       242
                               ------    ------      ------    ------    ------
Total......................    93,620    44,809      10,908    12,875    25,028
                               ======    ======      ======    ======    ======

December 31, 2000
Business machines..........    58,697    25,788       9,328    10,644    12,937
Cameras....................    12,708     3,706         746       892     7,364
Optical and other products.    11,068     7,783       1,351       875     1,059
Corporate..................     4,200     3,800         145       106       149
                               ------    ------      ------    ------    ------
Total......................    86,673    41,077      11,570    12,517    21,509
                               ======    ======      ======    ======    ======

December 31, 1999*
Total......................    81,009
</TABLE>

----------
* Segment information for 1999 is not available.

     There was an increase of approximately 7,000 employees as of the end of
fiscal 2001 compared to the end of fiscal 2000. This increase is due to several
factors, including primarily:

     o    Consolidation in fiscal 2001, including several domestic subsidiaries
          of Canon System and Support Inc.; and

     o    Increases, especially in the Asian region, to accommodate increasing
          production.

     Canon had approximately 16,300 temporary employees as of December 31,
2001. This number includes seasonal workers as well as temp-staff employees
such as security staff, meal service staff and janitorial staff.

     The Company and certain of its subsidiaries encourage its employees to
purchase shares of their Common Stock in the market through an employees' stock
purchase association.

     Each of the Company and its subsidiaries has its own independent labor
union. Canon has not experienced a labor strike since its establishment. The
Company believes that the relationship between Canon and its labor unions is
good.

                                       34
<PAGE>


     E. Share ownership

     The following table lists the number of shares owned by the directors and
corporate auditors of the Company as of March 31, 2002. The total is 236,164
shares constituting 0.03% of all outstanding shares.

<TABLE>
Name                      Position                        Number of shares
----                      --------                        ----------------
<S>                       <C>                            <C>
Fujio Mitarai.........    President & C.E.O.                   56,348
Ichiro Endo...........    Senior Managing Director             15,378
Yukio Yamashita.......    Senior Managing Director             10,000
Toshizo Tanaka........    Senior Managing Director             10,608
Takashi Saito.........    Managing Director                    21,544
Yusuke Emura..........    Managing Director                     9,613
Kinya Uchida..........    Managing Director                    12,535
Akira Tajima..........    Managing Director                    11,435
Nobuyoshi Tanaka......    Managing Director                     8,435
Tsuneji Uchida........    Managing Director                     3,200
Junji Ichikawa........    Managing Director                     6,871
Hajime Tsuruoka.......    Managing Director                     3,435
Toru Takahashi........    Director                             12,378
Muneo Adachi..........    Director                              3,075
Teruomi Takahashi.....    Director                              5,871
Hironori Yamamoto.....    Director                              2,000
Akiyoshi Moroe........    Director                              8,735
Kunio Watanabe........    Director                              4,435
Ikuo Soma.............    Director                              2,250
Yoroku Adachi.........    Director                              3,435
Yasuo Mitsuhashi......    Director                              1,435
Kohtaro Miyagi........    Corporate Auditor                     6,435
Masaharu Aono.........    Corporate Auditor                     3,613
Tadashi Ohe...........    Corporate Auditor                    11,100
Tetsuo Yoshizawa......    Corporate Auditor                     2,000
                                                              -------
     Total...........................................         236,164
                                                              =======
</TABLE>

Item 7. Major Shareholders and Related Party Transactions

     A. Major shareholders

     The table below shows the number of Canon shares held by holders of 5% or
more of Canon shares and their percentage ownership as of December 31, 2001:


Name of major shareholder                        Shares owned        Percentage
-------------------------                        ------------        ----------
                                                (In thousands)

The Dai-Ichi Mutual Life Insurance Co...             66,114            7.5%

State Street Bank and Trust Company  ...             45,401            5.2%

Japan Trustee Services Bank, Ltd.    ...             44,321            5.1%
(Trust Account)

     The Dai-Ichi Mutual Life Insurance Co.'s percentage ownership was 8.3% and
8.4% as of December 31, 2000 and 1999, respectively. This change was due to a
sell-down by the Dai-Ichi Mutual Life Insurance Co.. There were no other 5% or
greater shareholders during fiscal 2001 and 2001.

     Canon's major shareholders do not have different voting rights from other
shareholders.

     As of December 31, 2001, 16.3% of the outstanding shares were held of
record by 265 residents of the United States of America.

     The Company is not directly or indirectly owned or controlled by any other
corporation, by any government, or by any other natural or legal person or
persons severally or jointly.

                                       35
<PAGE>


     B. Related party transactions

     Since the beginning of Canon's last full fiscal year, Canon has not
transacted with, nor does Canon currently plan to transact with a related party
(other than certain transactions with subsidiaries of the Company). For
purposes of this paragraph, a related party includes: (a) enterprises that
directly or indirectly through one or more intermediaries, control or are
controlled by, or are under common control with, Canon; (b) associates; (c)
individuals owing, directly or indirectly, an interest in the voting power of
Canon that gives them significant influence over Canon, and close members of
any such individual's family; (d) key management personnel, that is, those
persons having authority and responsibility for planning, directing and
controlling the activities of Canon, including directors and senior management
of companies and close member of such individual's families; (e) enterprises in
which a substantial interest in the voting power is owned, directly or
indirectly, by any person described in (c) or (d) or over which such a person
is able to exercise significant influence. This includes enterprises owned by
directors or major shareholders of Canon and enterprises that have a member of
key management in common with Canon. Close members of an individual's family
are those that may be expected to influence, or be influenced by, that person
in their dealings with Canon. An associate is an unconsolidated enterprise in
which Canon has a significant influence or which has significant influence over
Canon. Significant influence over an enterprise is the power to participate in
the financial and operating policy decisions of the enterprise but is less than
control over those policies. Shareholders beneficially owing a 10% interest in
the voting power of Canon are presumed to have a significant influence on
Canon.

     To the Company's knowledge, no person owned a 10% interest in the voting
power of the Company as of March 31, 2002.

     C. Interests of experts and counsel

     None.

Item 8. Financial Information

     A. Consolidated statements and other financial information

Consolidated statements

     This Annual Report contains consolidated financial statements as of
December 31, 2001 and 2000 and for each of the three years in the period ending
December 31, 2001 prepared in accordance with accounting principles generally
accepted in the United States of America and audited in accordance with
accounting principles generally accepted in the United States of America by
KPMG, independent auditors, and accompanied by an audit report covering each of
the periods.

     Refer to Consolidated Financial Statements and Notes to Consolidated
Financial Statements

Legal proceedings

     Canon and certain of its subsidiaries are defendants in a number of
pending lawsuits. However, based upon information available to Canon,
management of the Company does not expect such lawsuits to have a material
effect on Canon's financial condition or results of operations.

Dividend policy

     Dividends are proposed by the Board of Directors of the Company based on
the year-end non-consolidated financial statements of the Company, and are
approved at the ordinary general meeting of shareholders, which is held in
March each year. Record holders of the Company's American Depositary Receipts
(ADRs) on the dividends record date are entitled to receive payment in full of
the declared dividend. In addition to annual dividends, by resolution of the
Board of Directors, the Company may declare a cash distribution as an interim
dividend. The record date for the Company's year-end dividends and for the
interim dividends are December 31 and June 30, respectively.

     Canon intends to continue providing stable returns of profits to
shareholders, while retaining sufficient internal funds to expand its business
and make the investments necessary to improve its income. However there can be
no assurance as to the particular amounts that would be paid from year to year.
The payment of future dividends will depend on Canon's earnings, financial
condition, future earnings prospects and other factors.

                                       36
<PAGE>


     B. Significant changes

     No significant change has occurred since the date of the annual financial
statements.

Item 9. The Offer and Listing

     A. Offer and listing details

Trading in domestic markets

     The common stock of the Company has been listed on the Tokyo Stock
Exchange (TSE), which is the principal stock exchange market in Japan, since
1949, and is traded on the First Section of the TSE. The shares are also listed
on four other regional markets in Japan.

     Following table lists the reported high and low sales prices of the shares
on the TSE and the closing highs and lows of the Tokyo Stock Price Index
(TOPIX) and Nikkei Stock Average for the five most recent years. TOPIX is an
index of the market value of stocks listed on the First Section of the TSE. The
Nikkei Stock Average, an index of 225 selected stocks on the First Section of
the TSE, is another widely accepted index.

<TABLE>
                                     TSE                           TOPIX                         Nikkei Stock Average
        Period                   (Canon Inc.)                 (Reference data)                     (Reference data)
-----------------------    ------------------------    ------------------------------     ---------------------------------
                                (Japanese yen)                    (Points)                          (Japanese yen)
                              High          Low             High             Low               High                Low
                           ----------    ----------    --------------    ------------     --------------     --------------
<S>                        <C>           <C>           <C>               <C>             <C>                 <C>
1997 Year..............    Yen  3,820    Yen  2,280        1,560.28         1,130.00      Yen  20,910.79     Yen  14,488.21
1998 Year..............         3,400         1,930        1,300.30           980.11           17,352.95          12,787.90
1999 Year..............         4,200         2,170        1,722.20         1,048.33           19,036.08          13,122.61
2000 1(st) quarter.....         4,920         3,550        1,754.78         1,558.15           20,809.79          18,068.10
     2(nd) quarter.....         5,520         3,830        1,732.45         1,504.93           20,833.21          15,870.25
     3(rd) quarter.....         5,620         4,420        1,613.89         1,439.43           17,661.11          15,394.71
     4(th) quarter.....         4,950         3,400        1,512.20         1,255.16           16,192.78          13,182.51
2000 Year..............         5,620         3,400        1,754.78         1,255.16           20,833.21          13,182.51
2001 1(st) quarter.....         5,190         3,720        1,337.63         1,161.97           14,186.62          11,433.88
     2(nd) quarter.....         5,330         4,490        1,440.97         1,254.19           14,566.11          12,511.66
     3(rd) quarter.....         5,030         3,150        1,293.42           990.80           12.929.66           9,382.95
     4(th) quarter.....         4,630         3,210        1,107.83           988.98           11,186.75           9,604.09
2001 Year..............         5,330         3,150        1,440.97           988.98           14,566.11           9,382.95

</TABLE>

<TABLE>
                                     TSE                           TOPIX                         Nikkei Stock Average
        Period                   (Canon Inc.)                 (Reference data)                     (Reference data)
-----------------------    ------------------------    ------------------------------     ---------------------------------
                                (Japanese yen)                    (Points)                          (Japanese yen)
                              High          Low             High             Low               High                Low
                           ----------    ----------    --------------    ------------     ---------------   ---------------
<S>                        <C>           <C>           <C>               <C>             <C>                  <C>
2001 July..............    Yen  5,030    Yen  3,990        1,293.42         1,163.76      Yen  12,929.66      Yen 11,531.68
     August............         4,570         3,550        1,235.26         1,114.58           12,407.37          10,684.16
     September.........         3,770         3,150        1,100.13           990.80           10,812.89           9,382.95
     October...........         4,170         3,210        1,107.83         1,031.17           11,052.01           9,604.09
     November..........         4,340         3,510        1,088.77         1,016.48           11,186.75           9,955.09
     December..........         4,630         4,030        1,058.03           988.98           11,052.51          10,170.90
2002 January...........         4,830         4,130        1,055.14           964.75           10,979.92           9,843.12
     February..........         4,700         4,050        1,013.80           922.51           10,798.62           9,420.85
     March.............         5,010         4,650        1,125.43         1,030.17           12,034.04          10,540.31
     April.............         5,250         4,630        1,105.91         1,053.46           11,812.99          10,896.12
     May...............         5,160         4,710        1,139.43         1,071.89           12,081.43          11,250.86
</TABLE>

Trading in foreign markets

     The Company's ADRs are listed on the New York Stock Exchange (NYSE) and
the Company's Global Bearer Certificates (GBCs) are listed on the Frankfurt
Stock Exchange.


                                       37


<PAGE>



     Since our 1969 public offering in the United States of U.S.$9,000,000
principal amount of our 6 1/2 % Convertible Debentures due 1984, there has been
limited trading in the over-the-counter market in the Company's ADRs. Since
March 16, 1998, each ADR represent one share of the Company's common stock. The
Company's ADSs had been quoted on the National Association of Securities
Dealers Automated Quotation system ("NASDAQ") since 1972 under the symbol CANNY
to September 13, 2000.

     On September 14, 2000, Canon listed its ADSs on the NYSE under the symbol
CAJ. The table below displays historical transition of high and low prices of
our ADSs on NASDAQ and NYSE.

                                  NASDAQ                      NYSE
      Period                   (Canon Inc.)               (Canon Inc.)
-----------------------   ----------------------     ---------------------
                                          (U.S. dollars)
                            High           Low         High          Low
                          --------       -------     --------      -------
1997 Year..............    $32.100       $19.950
1998 Year..............     24.963        17.000
1999 Year..............     40.938        19.250
2000 1(st) quarter.....     46.250        33.500
     2(nd) quarter.....     51.750        37.563
     3(rd) quarter.....     51.625        41.500      $46.938      $42.625
     4(th) quarter.....                                45.750       31.000
2000 Year..............    $51.750       $33.500       46.938       31.000
2001 1(st) quarter.....                                40.550       31.500
     2(nd) quarter.....                                42.900       35.820
     3(rd) quarter.....                                40.580       26.480
     4(th) quarter.....                                36.070       28.700
2001 Year..............                                42.900       26.480

                                  NASDAQ                      NYSE
      Period                   (Canon Inc.)               (Canon Inc.)
-----------------------   ----------------------     ---------------------
                                          (U.S. dollars)
                            High           Low         High          Low
                          --------       -------     --------      -------
2001 July..............                               $40.580      $32.400
     August............                                36.260       30.160
     September.........                                31.150       26.480
     October...........                                33.410       28.700
     November..........                                33.950       29.060
     December..........                                36.070       33.140
2002 January...........                                36.910       31.370
     February..........                                34.640       30.750
     March.............                                38.400       36.200
     April.............                                40.310       35.650
     May...............                                38.530       37.300


     The depositary and agent of the ADRs is Morgan Guaranty Trust Company of
New York, located at 60 Wall Street, New York, N.Y. 10260-0060.

     Co-ownership shares in a GBCs are listed on the Frankfurt Stock Exchange.

     B. Plan of distribution

          Not applicable.

     C. Markets

          See Item 9A "Offer and Listing Details".

Item 10. Additional Information

     A. Share capital

          Not applicable.

     B. Memorandum and articles of association

          See Item 19, Exhibit 1(a), of the Company's registration statement on
     Form 20-F filed June 4, 1998.

     C. Material contracts

          None.

                                       38
<PAGE>


     D. Exchange controls

       (a) Information with respect to Japanese exchange regulations affecting
           the Company's security holders is as follows:

           The Foreign Exchange and Foreign Trade Law of Japan, as amended and
           effective from April 1, 1998, and the cabinet orders and ministerial
           ordinances thereunder (the "Foreign Exchange Regulations") govern
           certain aspects relating to the issuance of securities (including
           bonds and bonds with rights for subscription of new shares) by the
           Company and the acquisition and holding of such securities by
           "non-residents of Japan" and by "foreign investors" as hereinafter
           defined.

           "Non-residents of Japan" are defined as individuals who are not
           resident in Japan and corporations whose principal offices are
           located outside Japan. Generally, branches and other offices of
           Japanese corporations located outside Japan are regarded as
           non-residents of Japan, while branches and other offices located
           within Japan of non-resident corporations are regarded as residents
           of Japan. "Foreign investors" are defined to be (i) individuals not
           resident in Japan, (ii) corporations which are organized under the
           laws of foreign countries or whose principal offices are located
           outside Japan, (iii) corporations of which 50% or more of the shares
           are held by (i) and / or (ii) above and (iv) corporations in respect
           of which (a) a majority of the officers are non-resident individuals
           or (b) a majority of the officers having the power to represent the
           corporation are non-resident individuals.

           Issuance of Securities by the Company:

           Under the Foreign Exchange Regulations, the issue of securities
           outside Japan by the Company is, in principle, not subject to a
           prior notification requirement, but subject to a post reporting
           requirement of the Minister of Finance. Under the Foreign Exchange
           Regulations as currently in effect, payments of principal, premium
           and interest in respect of securities and any additional amounts
           payable pursuant to the terms thereof may in general be paid when
           made without any restrictions under the Foreign Exchange
           Regulations.

           Acquisition of Shares:

           In general, the acquisition of shares of stock of a Japanese company
           listed on any Japanese stock exchange or traded in any
           over-the-counter market in Japan ("listed shares") by a non-resident
           of Japan from a resident of Japan is not subject to a prior
           notification requirement, but subject to a post reporting
           requirement of the Minister of Finance by such resident.

           In the case where a foreign investor intends to acquire listed
           shares (whether from a resident or a non-resident of Japan, from
           another foreign investor or from or through a designated securities
           company) and as a result of such acquisition the number of shares
           held, directly or indirectly, by such foreign investor would become
           10% or more of the total outstanding shares of the company, the
           foreign investor must generally report such acquisition to the
           Minister of Finance and other Ministers having jurisdiction over the
           business of the subject company within 15 days from and including
           the date of such acquisition. In certain exceptional cases, a prior
           notification is required in respect of such acquisition.

           Acquisition of Shares upon Exercise of Rights for Subscription of New
           Shares:

           The acquisition by a non-resident of Japan of shares upon exercise
           of his rights for subscription of new shares is exempted from the
           notification and reporting requirements described under "Acquisition
           of Shares" above.

           Dividends and Proceeds of Sales:

           Under the Foreign Exchange Regulations currently in effect,
           dividends paid on, and the proceeds of sale in Japan of, the shares
           held by non-residents of Japan may be converted into any foreign
           currency and repatriated abroad. The acquisition of shares by
           non-resident shareholders by way of stock splits is not subject to
           any of the aforesaid notification requirements.

                                       39
<PAGE>


       (b) Reporting of Substantial Shareholdings:

           The Securities and Exchange Law of Japan requires any person who has
           become, beneficially and solely or jointly, a holder of more than 5%
           of the total outstanding voting shares of capital stock of a company
           listed on any Japanese stock exchange or whose shares are traded on
           the over-the-counter market in Japan to file with the relevant Local
           Finance Bureau of the Minister of Finance within five business days
           a report concerning such share ownership. A similar report must also
           be made in respect of any subsequent change of 1% or more in any
           such holding. Copies of any such report must also be furnished to
           the issuer of such shares and all Japanese stock exchanges on which
           the shares are listed or (in the case of over-the-counter shares)
           the Japan Securities Dealers Association. For this purpose, shares
           issuable exercise of rights for subscription of new shares held by
           such holder are taken into account in determining both the size of a
           holding and a company's total outstanding share capital.

      E. Taxation

      1. Taxation in Japan

      Generally, a non-resident of Japan or a non-Japanese corporation is
   subject to Japanese withholding tax on dividends paid by Japanese
   corporations. Stock splits are not subject to Japanese income tax, provided
   however, that a transfer of retained earnings or legal reserve (but,
   generally, not additional paid-in capital) to stated capital (whether made
   in connection with a stock split or otherwise) is treated as a dividend
   payment to shareholders for Japanese tax purposes and is, generally, subject
   to Japanese income tax.

      Pursuant to the current tax convention between the United States and
   Japan, Japanese withholding tax at the rate of 15% is generally imposed on
   dividend payments made by a Japanese corporation to a United States resident
   or corporation, unless the recipient of the dividend has a permanent
   establishment in Japan and the shares with respect to which such dividends
   are paid are related in-fact to such permanent establishment.

      The amount of withholding tax imposed on dividends payable to the holders
   of the shares and ADRs who reside in a country other than the United States
   is dependent upon the provisions of conventions or agreements as may exist
   between such country and Japan. In the absence of a convention or agreement,
   the rate of Japanese withholding tax imposed on dividends paid by Japanese
   companies is 20%.

      Gains derived from the sale outside Japan of the shares or ADRs by a
   non-resident of Japan or a non-Japanese corporation, or from the sale of the
   shares within Japan by a non-resident of Japan or by a non-Japanese
   corporation not having a permanent establishment in Japan, are generally not
   subject to Japanese income or corporation taxes.

      2. Taxation in the United States

      The following is a discussion of material U.S. federal income tax
   consequences of purchasing, owning and disposing of Canon shares or ADSs,
   but it does not purport to be a comprehensive description of all of the tax
   considerations that may be relevant to a particular person's decision to
   acquire such securities. The discussion applies only if you hold Canon
   shares or ADSs as capital assets for tax purposes and it does not address
   special classes of holders, such as:

      o   certain financial institutions;
      o   insurance companies;
      o   dealers and traders in securities or foreign currencies; o persons
          holding Canon shares or ADSs as part of a hedge, straddle or
          conversion transaction;
      o   persons whose functional currency for U.S. federal income tax purposes
          is not the U.S. dollar;
      o   partnerships or other entities classified as partnerships for U.S.
          federal income tax purposes;
      o   persons liable for the alternative minimum tax;
      o   tax-exempt organizations;
      o   persons holding Canon shares or ADSs that own or are deemed to own
          more than ten percent of any class of Canon stock; or
      o   persons who acquired Canon shares or ADSs pursuant to the exercise of
          any employee stock option or otherwise as compensation.

                                       40
<PAGE>


     This discussion is based on the Internal Revenue Code of 1986, as amended,
     administrative pronouncements, judicial decision and final, temporary and
     proposed Treasury regulations, all as currently in effect. These laws are
     subject to change, possibly on a retroactive basis. It is also based in
     part on representations by the depositary and assumes that each obligation
     under the deposit agreement and any related agreement will be performed in
     accordance with its terms. Please consult your own tax advisers concerning
     the U.S. federal, state, local and foreign tax consequences of purchasing,
     owning and disposing of Canon shares or ADSs in your particular
     circumstances.

  The discussion below applies to you only if you are a beneficial owner of
  Canon shares or ADSs and are, for U.S. federal tax purposes:


     o   a citizen or resident of the United States;
     o   a corporation, or other entity taxable as a corporation, created or
         organized in or under the laws of the United States or any political
         subdivision thereof; or
     o   an estate or trust the income of which is subject to U.S. federal
         income taxation regardless of its source.

     In general, if you hold ADSs, you will be treated as the holder of the
  underlying shares represented by those ADSs for U.S. federal income tax
  purposes. Accordingly, no gain or loss will be recognized if you exchange
  ADSs for the underlying shares represented by those ADSs.

      The U.S. Treasury has expressed concerns that parties to whom ADSs are
  released may be taking actions that are inconsistent with the claiming of
  foreign tax credits for United States holders of ADSs. Accordingly, the
  analysis of the creditability of Japanese taxes described below could be
  affected by future actions that may be taken by the U.S. Treasury.

  Taxation of Distributions

      Distributions paid on ADSs or shares, to the extent paid out of current
  or accumulated earnings and profits, other than certain pro rata
  distributions of common shares, as determined under United States federal
  income tax principles will be treated as a dividend. The amount of this
  dividend will include any amounts withheld by Canon or its paying agent in
  respect of Japanese taxes. The amount of the dividend will be treated as
  foreign source dividend income to you and will not be eligible for the
  dividends received deduction generally allowed to U.S. corporations under the
  Code. Such dividends will constitute passive income for foreign tax credit
  purposes. Distributions in excess of current or accumulated earnings and
  profits will be treated first as a tax free return of capital to the extent
  of your basis in the shares and then as capital gain.

      Dividends paid in Japanese yen will be included in your income in a U.S.
  dollar amount calculated by reference to the exchange rate in effect on the
  date of your (or in the case of ADSs, the depositary's) receipt of the
  dividend, regardless of whether the payment is in fact converted into U.S.
  dollars. If the dividend is converted into U.S. dollars on the date of
  receipt, you generally should not be required to recognize foreign currency
  gain or loss in respect of the dividend income. You may have foreign currency
  gain or loss if you do not convert the amount of such dividend into U.S.
  dollars on the date of its receipt.

      Japanese taxes withheld from cash dividends on Canon shares or ADSs will
  be creditable against your U.S. federal income tax liability, subject to
  applicable limitations that may vary depending upon your circumstances.
  Instead of claiming a credit, you may, at your election, deduct such Japanese
  taxes in computing your taxable income, subject to generally applicable
  limitations under U.S. law. You should consult your own tax advisers to
  determine whether you are subject to any special rules that limit your
  ability to make effective use of foreign tax credits.

  Sale and Other Disposition of Canon Shares or ADSs

      For U.S. federal income tax purposes, gain or loss you realize on the
  sale or other disposition of Canon shares or ADSs will be capital gain or
  loss, and will be long-term capital gain or loss if you held the Canon shares
  or ADSs for more than one year. The amount of your gain or loss will be equal
  to the difference between your tax basis in the Canon shares or ADSs disposed
  of and the amount realized on the disposition. Such gain or loss will
  generally be U.S. source gain or loss for foreign tax credit purposes.

                                       41
<PAGE>


  Passive Foreign Investment Company Rules

      Canon believes that it will not be considered a "passive foreign
  investment company" ("PFIC") for United States federal income tax purposes
  for 2001. However, since PFIC status depends upon the composition of Canon's
  income and assets and the market value of its assets (including, among
  others, goodwill and equity investments in less than 25 percent owned
  entities) from time to time, there can be no assurance that Canon will not be
  considered a PFIC for any other taxable year. If Canon were treated as a PFIC
  for any taxable year during which you held Canon shares or ADSs, certain
  adverse consequences could apply to you.

      If Canon were treated as a PFIC for any taxable year, gain recognized by
   you on the sale or other disposition of Canon shares or ADSs would be
   allocated ratably over you holding period for such securities. The amounts
   allocated to the taxable year of the sale or other disposition and to any
   year before Canon became a PFIC would be taxed as ordinary income. The
   amount allocated to each other taxable year would be subject to tax at the
   highest rate in effect for individuals or corporations, as appropriate, and
   an interest charge would be imposed on the tax liability attributable to
   such allocated amounts. Further, any distribution in respect of Canon shares
   or ADSs in excess of 125 percent of the average of the annual distributions
   on such securities received by you during the preceding three years or your
   holding period, whichever is shorter, would be subject to taxation as
   described above. Certain elections (including a mark to market election) may
   be available to you that may mitigate the adverse consequences resulting
   from PFIC status.

   Information Reporting and Backup Withholding

      Payment of dividends and sales proceeds that are made within the United
  States or through certain U.S.-related financial intermediaries generally are
  subject to information reporting and to backup withholding unless (i) you are
  a corporation or other exempt recipient or (ii) you provide a correct
  taxpayer identification number and certify that no loss of exemption from
  backup withholding has occurred.

      The amount of any backup withholding from a payment to you will be
  allowed as a credit against your United States federal income tax liability
  and may entitle you to a refund, provided that the required information is
  furnished to the Internal Revenue Service.

     F. Dividends and paying agents

          Not applicable.

     G. Statement by experts

          Not applicable.

     H. Documents on display

     According to the Securities Exchange Act of 1934, as amended, the Company
is subject to the requirements of informational disclosure. The Company files
various reports and other information, including Form 20-F and Annual Reports,
to the Securities Exchange Commission and the New York Stock Exchange. These
reports may be inspected at the following sites.

      Securities Exchange Commission:
       450 Fifth Street, N.W., Washington D.C. 20549

      New York Stock Exchange:
       20 Broad Street, New York, New York 10005

Form 20-F is also available at the Electronic Data Gathering, Analysis,
Retrieval system (EDGAR) website which is maintained by the Securities Exchange
Commission.

      Securities Exchange Commission Home Page:
       http://www.sec.gov

     I. Subsidiary information

          Not applicable.

                                       42
<PAGE>


Item 11. Quantitative and Qualitative Disclosures About Market Risk

Market risk exposures

     Canon is exposed to market risks, including changes in foreign exchange
rates, interest rates and prices of marketable securities and marketable
investments. In order to hedge the risks of changes in foreign exchange rates
and interest rates, Canon uses derivative financial instruments.

Equity price risk

     Canon holds marketable securities and marketable investments included in
current assets for short-term investment. In general, highly-liquid and
low-risk instruments are preferred in the portfolio. Marketable securities and
marketable investments included in noncurrent assets are held as longer-term
investments. Canon does not hold marketable securities and marketable
investments for trading purposes.

     Maturities and fair values of such marketable securities and marketable
investments were as follows at December 31, 2001 and 2000.

<TABLE>
                                                            2001                           2000
                                                  ---------------------------     --------------------------
                                                    Cost         Fair value        Cost          Fair value
                                                  --------       ----------       ------        ------------
                                                                     (Millions of yen)
<S>                                                   <C>             <C>            <C>             <C>
Due within one year..........................     Yen  3,824      Yen  3,883     Yen  2,191     Yen   2,250
Due after one year through five years........          2,074           2,387          2,780           3,573
Due after five years.........................          5,516           5,550          6,376           6,463
Equity securities............................          7,438          12,363         29,956          62,398
                                                  ----------      ----------     ----------     -----------
Total........................................     Yen 18,852      Yen 24,183     Yen 41,303     Yen  74,684
                                                  ==========      ==========     ==========     ===========
</TABLE>

Foreign Exchange Rates and Interest Rates Risk

     Canon operates internationally and is therefore exposed to the risk of
changes in foreign exchange rates and interest rates. Canon and certain of its
subsidiaries utilize various derivative financial instruments, principally
foreign exchange contracts and interest rate swaps, to reduce these risks.
Canon assesses the risks of foreign currency exchange and interest rates by
continually monitoring changes in its exposure to these risks and by evaluating
hedging opportunities. Canon does not hold or issue derivative financial
instruments for trading purposes. Canon is also exposed to credit-related
losses in the event of non-performance by counterparties to derivative
financial instruments, but it is not expected that any counterparties will fail
to meet their obligations, because most of the counterparties are
internationally recognized financial institutions and the contracts are
diversified among a number of major financial institutions.

                                       43


<PAGE>



     The major manufacturing bases of Canon are located in Japan and Asia. The
sales generated from overseas are mainly denominated in U.S. dollar or Euro.
Therefore, Canon's international operations expose Canon to the risk of changes
in foreign currency exchange rate. To manage foreign exchange exposure from
sales in foreign currencies such as U.S. dollars and Euro, Canon enters into
foreign exchange contracts, which it uses to manage certain foreign currency
exchange exposures principally from the exchange of U.S. dollar and Euro into
Japanese yen. These contracts are primarily used to hedge the foreign currency
exposure of forecasted intercompany sales which are denominated in foreign
currencies. In accordance with Canon's policy, a specific portion of foreign
currency exposure resulting from forecasted intercompany sales are hedged using
foreign exchange contracts which principally mature within three months.

     The following table provides information about Canon's major derivative
financial instruments related to foreign currency exchange transactions
existing at December 31, 2001 and 2000 together with the related weighted
average contractual exchange rates at December 31, 2001 and 2000. All of the
foreign exchange contracts described in the following table have a contractual
maturity date in 2002 and 2001.

<TABLE>
                                                                    As of December 31, 2001
                                                -----------------------------------------------------------------
Forwards to sell foreign currencies              U.S.$/Yen            euro/Yen           Others          Total
-----------------------------------             -----------         -----------        ----------     -----------
                                                      (Millions of yen except average contractual rates)
<S>                                             <C>                  <C>                 <C>              <C>

Contract amounts.......................         Yen 117,579         Yen 115,405        Yen 17,904     Yen 250,888
Estimated fair value...................              (7,414)             (5,384)             (701)        (13,499)
Average contractual rates..............              120.98              109.35                --              --
</TABLE>


<TABLE>

                                                                    As of December 31 2000
                                                -----------------------------------------------------------------
Forwards to sell foreign currencies             U.S.$/Yen            euro/Yen            Others           Total
-----------------------------------             -----------         -----------        ----------     -----------
                                                      (Millions of yen except average contractual rates)
<S>                                             <C>                  <C>                 <C>              <C>

Contract amounts........................        Yen 271,398         Yen  88,483        Yen  1,398     Yen 361,279
Estimated fair value...................             (11,257)             (8,920)              250        (19,927)
Average contractual rates..............              108.86               95.01                --
</TABLE>


     Canon's exposure to the market risk of changes in interest rates relates
primarily to its debt obligations. Fixed-rate debt obligations expose Canon to
variability in their fair values due to changes in interest rates. To manage
the variability in the fair values caused by interest rate changes, Canon
enters into interest rate swaps when it is determined to be appropriate based
on market conditions. Interest rate swaps change fixed-rate debt obligations to
variable-rate debt obligations by entering into receive-fixed, pay-variable
interest rate swaps. The hedging relationship between interest rate swaps and
hedged debt obligations is highly effective in achieving offsetting changes in
fair values resulting from interest rate risk.

                                       44


<PAGE>



     The following tables provide information about Canon's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates. For debt obligations, the table presents principal
cash flows and related weighted average interest rates by expected maturity
dates. For interest rate swaps, the table presents notional principal amounts
and weighted average interest rates by expected maturity dates. Notional
principal amounts are used to calculate the contractual payments to be
exchanged under the contracts. The table presents information for obligations
existing at December 31, 2001 and 2000 together with the related weighted
average contractual interest rates at December 31, 2001 and 2000.

<TABLE>
Long-term debt (including due within one year)

                                                                                Expected maturity date
                           Average               ----------------------------------------------------------------------------------
                          interest                                                                                       Estimated
                           rates*     Total         2002        2003        2004        2005        2006    Thereafter  fair value
                          -------- -----------   ----------  ----------  ----------  ----------  ---------- ----------  -----------
                                                                           (Millions of yen except interest rate data)
<S>                       <C>      <C>           <C>         <C>         <C>         <C>         <C>        <C>         <C>
Year ended
December 31, 2001:
Japanese yen notes ......   2.26%  Yen  92,479   Yen 37,559  Yen  9,920  Yen 20,000  Yen  5,000          --  Yen 20,000  Yen  96,436
Japanese yen convertible
 debentures .............   1.21        18,945        3,825          --          --       5,172          --       9,948       57,020
Loans, principally
 from banks .............   3.93        37,850       16,189      10,546       5,202       1,570  Yen    433       3,910       36,121
                                   -----------   ----------  ----------  ----------  ----------  ----------  ----------  -----------

 Total ..................     --   Yen 149,274   Yen 57,573  Yen 20,466  Yen 25,202  Yen 11,742  Yen    433  Yen 33,858  Yen 189,577
                                   ===========   ==========  ==========  ==========  ==========  ==========  ==========  ===========
</TABLE>

<TABLE>
                                                                                Expected maturity date
                           Average               ----------------------------------------------------------------------------------
                          interest                                                                                       Estimated
                           rates*     Total         2001        2002        2003        2004        2005    Thereafter  fair value
                          -------- -----------   ----------  ----------  ----------  ----------  ---------- ----------  -----------
                                                                           (Millions of yen except interest rate data)
<S>                       <C>      <C>           <C>         <C>         <C>         <C>         <C>        <C>         <C>
Year ended
December 31, 2000:
Japanese yen notes ......   2.27%  Yen 111,920   Yen 19,920  Yen 37,000  Yen 10,000  Yen 20,000  Yen  5,000  Yen 20,000  Yen 115,741
Japanese yen convertible
 debentures .............   1.20        19,926           --       4,746          --          --       5,221       9,959       56,912
Loans, principally
 from banks .............   3.40        49,574       18,575      14,921       8,455       1,147       1,346       5,130       52,535
                                   -----------   ----------  ----------  ----------  ----------  ----------  ----------  -----------

 Total ..................     --   Yen 181,420   Yen 38,495  Yen 56,667  Yen 18,455  Yen 21,147  Yen 11,567  Yen 35,089  Yen 225,188
                                   ===========   ==========  ==========  ==========  ==========  ==========  ==========  ===========

</TABLE>
----------

*    All long-term debt is fixed rate except loans, principally from banks
     which include both fixed and floating rate debt.

                                       45



<PAGE>



<TABLE>

Interest rate swaps

Year ended December 31, 2001:
                                                                             Expected maturity date
 Notional      Average                          ----------------------------------------------------------------------------------
 principal     receive    Average                                                                                       Estimated
 amount        rate       pay rate     Total       2002        2003        2004        2005        2006     Thereafter  fair value
-----------  ---------   ---------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
(Millions)                                             (Millions of yen except notional principal amount and percentage data)
<S>          <C>          <C>        <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
Yen  20,000    2.60%       -0.03%   Yen 20,000  Yen 20,000          --          --          --        --          --   Yen   575
U.S.$   476    1.98         5.34        62,811       9,123  Yen 19,250  Yen 34,438          --        --          --      (1,463)

----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
Year ended December 31, 2000:
                                                                             Expected maturity date
 Notional      Average                          ----------------------------------------------------------------------------------
 principal     receive    Average                                                                                       Estimated
 amount        rate       pay rate     Total       2001        2002        2003        2004        2005     Thereafter  fair value
-----------  ---------   ---------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
(Millions)                                             (Millions of yen except notional principal amount and percentage data)
<S>          <C>          <C>        <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
Yen  60,000    1.63%        0.84%   Yen 60,000  Yen 40,000  Yen 20,000          --          --        --          --   Yen 1,315
U.S.$   467    6.20         6.62        53,538       6,202      19,934  Yen 27,402          --        --          --        (515)
</TABLE>

     Derivative financial instruments designated as fair value hedges
principally relate to interest rate swaps associated with fixed rate debt
obligations. Changes in fair values of the hedged debt obligations and
derivative instruments designated as fair value hedges of these debt
obligations are recognized in other income (deductions). There is no hedging
ineffectiveness or net gains or losses excluded from the assessment of hedge
effectiveness for the year ended December 31, 2001 as the critical terms of the
interest rate swaps match the terms of the hedged debt obligations. Changes in
the fair value of foreign exchange contracts designated and qualifying as cash
flow hedges of forecasted intercompany sales are reported in accumulated other
comprehensive income (loss). These amounts are subsequently reclassified into
earnings through other income (deductions) in the same period as the hedged
items affect earnings. All the accumulated other comprehensive income (loss) at
end of year are substantially expected to be recognized in earnings over the
next twelve months. Canon excludes the time value component of the hedging
instruments from the assessment of hedge effectiveness.

Item 12. Description of Securities Other than Equity Securities

Not applicable.


                                       46



<PAGE>


                                    PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

     None.

Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds

     As a result of amendments to the Japanese Commercial Code which became
effective on October 1, 1982 (the "1982 Amendments"), the Deposit Agreement
dated May 1, 1969, which constituted the American Depositary Receipts for
10,000,000 ADSs, each ADS representing five shares, was amended and restated as
of October 1, 1982 (the "amended Deposit Agreement").

     Under the 1982 Amendments, the Company was required to adopt a "unit" of
Shares ("tan-i-kabu"). At its annual meeting of shareholders held on March 30,
1982, the Company adopted 1,000 Shares as one unit, effective from October 1,
1982.

     Recent amendments to the Japanese Commercial Code abolished the unit share
System called "tan-i-kabu" as of October 1, 2001, and introduced a new unit
share system called "tangen-kabu" (together with the 1982 Amendments, the
"Amendments"). Pursuant to these legal changes, the Company is deemed to have
amended its Articles of Incorporation in October 2001, so that 1,000 Shares
constitute one new unit. The Commercial Code permits the Board of Directors to
reduce the number of Shares that will constitute a new unit or abolish the new
unit share system entirety by amending the Company's Articles of Incorporation
without approval by shareholders. The number of Shares constituting a new unit
may not exceed 1,000 Shares or one-two hundredths (1/200) of the number of all
issued Shares.

     Under the unit share system, shareholders have one voting right for each
unit of Shares they hold. Shares not constituting a full unit will carry all
shareholders' rights except for those relating to voting rights.

     Pursuant to the amendment to the Commercial Code, the Company is deemed to
have amended its Articles of Incorporation so that no share certificates will
be issued with respect to any Shares constituting less than one unit.
Consequently, no certificates for Shares other than a full unit or an integral
multiple thereof will be issued unless the Company determines that it is
necessary to issue such certificates for protection of the holders of Shares
constituting less than one unit. As the transfer of Shares normally requires
delivery of the relevant share certificates, any fraction of a unit for which
no share certificates are issued will not be transferable.

     A holder of Shares constituting less than one unit may at any time require
the Company (through the participating institution in the case of a beneficial
shareholder under the central clearing system) to purchase such Shares at the
last selling price of a Share as reported by the Tokyo Stock Exchange on the
day when such request is made.

    A holder of Shares constituting less than one unit is entitled as a
shareholder to the rights (i) to receive distribution of dividends of profit or
interest, (ii) to receive Shares and/or cash by way of retirement,
consolidation, division, conversion, exchange or transfer of shares, company
split or merger, (iii) to be allotted rights to subscribe for new Shares and
other securities when such rights are granted to shareholders; and (iv) to
participate in any distribution of surplus assets upon liquidation. Such holder
cannot exercise any voting rights pertaining to those Shares. For calculation
of the quorum for various voting purposes, the aggregate number of Shares
constituting less than one unit will be excluded from the number of voting
rights.

     As a result of the Amendments, the depositary under the Deposit Agreement
may be unable to deliver share certificates with respect to those shares
otherwise deliverable upon the surrender of ADRs which do not constitute one or
more complete units. In such case, the amended Deposit Agreement provides that
the depositary will promptly advise the holder of the amount of such shares,
deliver to the holder a new ADR evidencing such shares, and notify the holder
of the additional amount of ADRs which the holder must surrender in order for
the depositary to effect delivery of share certificates for all of shares
represented by the holder's ADSs.

     Effective from March 16, 1998, the Company changed the ratio of ADSs to
shares from five shares to one share. In this regard, four additional ADSs for
each ADS held were distributed to holders of ADS. Existing ADRs remain valid
and do not need to be exchanged for new ones.

                                       47
<PAGE>


Item 15. [Reserved]

Item 16. [Reserved]


                                       48



<PAGE>


                                    PART III

Item 17. Financial Statements

Consolidated financial statement of Canon Inc. and Subsidiaries:     Page number
                                                                     -----------

     Independent Auditors' Report............................................50

     Consolidated Balance Sheets as of December 31, 2001 and 2000............51

     Consolidated Statements of Income for the years ended December
     31, 2001, 2000 and 1999.................................................52

     Consolidated Statements of Stockholders' Equity for the years
     ended December 31, 2001, 2000 and 1999..................................53

     Consolidated Statements of Cash Flows for the years ended
     December 31, 2001, 2000 and 1999........................................54

     Notes to Consolidated Financial Statements..............................56

Schedule:

     Independent Auditors' Report on Schedule................................50

     Schedule II Valuation and Qualifying Accounts for the years ended
     December 31, 2001, 2000 and 1999........................................89

     All other schedules are omitted as permitted by the rules and regulations
     of the Securities and Exchange Commission as not applicable.

Financial statements of non-consolidated subsidiaries and affiliates, 20% to
50% owned, are omitted because they were not significant as of or for the year
ended December 31, 2001.


                                  49
<PAGE>



                          Independent Auditors' Report


The Board of Directors and Stockholders
Canon Inc.:


We have audited the consolidated financial statements (expressed in yen) of
Canon Inc. and subsidiaries as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

The segment information required to be disclosed in financial statements under
accounting principles generally accepted in the United States of America is not
presented in the accompanying consolidated financial statements. Foreign
issuers are currently exempted from such disclosure requirement in Securities
Exchange Act filings with the United States Securities and Exchange Commission.

In our opinion, except for the omission of the segment information as discussed
in the third paragraph of this report, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Canon Inc. and subsidiaries at December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.

Also in our opinion, the related financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

As discussed in note 1 of the notes to the consolidated financial statements,
Canon Inc. and subsidiaries changed their method of accounting for derivative
instruments and hedging activities in the year beginning January 1, 2001.


KPMG

Tokyo, Japan
January 30, 2002


                                      50
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                          Consolidated Balance Sheets
                           December 31, 2001 and 2000

<TABLE>
                                                                                 Millions of yen
                                                                           ---------------------------
                                                                                2001          2000
                                                                           ------------- -------------
                                Assets
 Current assets:
<S>                                                                              <C>           <C>
      Cash and cash equivalents                                         Yen      506,234       493,962
      Marketable securities (note 3)                                               4,772        10,943
      Trade receivables (notes 4 and 7)                                          456,635       479,790
      Inventories (notes 5 and 7)                                                448,300       490,693
      Prepaid expenses and other current assets (note 10)                        214,353       196,011
                                                                           ------------- -------------
              Total current assets                                             1,630,294     1,671,399

 Noncurrent receivables and restricted funds (note 18)                            21,125        27,626
 Investments (notes 3 and 7)                                                      66,168       119,195
 Net property, plant and equipment (notes 6 and 7)                               821,125       771,594
 Other assets (notes 9 and 10)                                                   306,044       242,311
                                                                           ------------- -------------

              Total assets                                              Yen    2,844,756     2,832,125
                                                                           ============= =============

                 Liabilities and Stockholders' Equity
 Current liabilities:
      Short-term loans (note 7)                                         Yen      200,104       248,688
      Trade payables (note 8)                                                    354,446       444,633
      Income taxes (note 10)                                                      65,324        53,865
      Accrued expenses                                                           157,335       164,484
      Other current liabilities (note 10)                                         76,974        63,120
                                                                           ------------- -------------
              Total current liabilities                                          854,183       974,790

 Long-term debt, excluding current installments (note 7)                          95,526       142,925
 Accrued pension and severance cost (note 9)                                     237,537       194,445
 Other noncurrent liabilities (note 10)                                           17,645        22,838
                                                                           ------------- -------------
              Total liabilities                                                1,204,891     1,334,998
                                                                           ------------- -------------

 Minority interests                                                              181,389       198,213
                                                                           ------------- -------------

 Stockholders' equity:
      Common stock
        Authorized 2,000,000,000 shares;
        issued 876,282,332 shares in 2001
        and 875,627,023 shares in 2000 (notes 7 and 11)                          165,287       164,796
      Additional paid-in capital (notes 7 and 11)                                392,456       391,939
      Legal reserve (note 12)                                                     38,330        35,584
      Retained earnings (notes 10 and 12)                                        997,848       853,177
      Accumulated other comprehensive income (loss)
        (notes 3, 9, 10, 14 and 17)                                             (135,168)     (146,582)
      Treasury stock, at cost 69,889 shares in 2001                                 (277)            -
                                                                           ------------- -------------
              Total stockholders' equity                                       1,458,476     1,298,914
                                                                           ------------- -------------

 Commitments and contingent liabilities (note 18)                          ------------- -------------

              Total liabilities and stockholders' equity                Yen    2,844,756     2,832,125
                                                                           ============= =============

           See accompanying notes to consolidated financial statements.
</TABLE>


                                      51
<PAGE>


                          CANON INC. AND SUBSIDIARIES

                       Consolidated Statements of Income

                  Years ended December 31, 2001, 2000 and 1999
<TABLE>
                                                                                         Millions of yen
                                                                           ----------------------------------------
                                                                                2001          2000          1999
                                                                                ----          ----          ----

<S>                                                                           <C>           <C>           <C>
Net sales                                                              Yen    2,907,573     2,696,420     2,530,896

Cost of sales                                                                 1,626,959     1,577,461     1,497,940
                                                                           ------------  ------------  ------------
             Gross profit                                                     1,280,614     1,118,959     1,032,956

Selling, general and administrative expenses                                    998,775       884,828       864,612
                                                                           ------------  ------------  ------------
             Operating profit                                                   281,839       234,131       168,344

Other income (deductions):
     Interest and dividend income                                                 9,571        11,428        10,222
     Interest expense                                                           (10,712)      (15,018)      (20,356)
     Other, net                                                                     868        (3,345)       (2,138)
                                                                           ------------  ------------  ------------
                                                                                   (273)       (6,935)      (12,272)
                                                                           ------------  ------------  ------------
             Income before income taxes and minority interests                  281,566       227,196       156,072

Income taxes (note 10)                                                          115,154        87,197        83,939
                                                                           ------------  ------------  ------------
             Income before minority interests                                   166,412       139,999        72,133

Minority interests                                                                2,543         5,911         1,899
                                                                           ------------  ------------  ------------
             Income before cumulative effect of change in                       163,869       134,088        70,234
               accounting principle

Cumulative effect of change in accounting principle, net of tax                   3,692             -             -
                                                                           ------------  ------------  ------------
  (note 1(o))
             Net income                                                 Yen     167,561       134,088        70,234
                                                                           ============  ============  ============

                                                                                               Yen
Earnings per share (notes 1(q) and 15):
     Basic:
         Income before cumulative effect of change in                   Yen    187.07        153.66         80.66
           accounting principle
         Cumulative effect of change in accounting principle                     4.22             -             -
                                                                              -------       -------       -------
         Net income                                                     Yen    191.29        153.66         80.66
                                                                              =======       =======       =======
     Diluted:
         Income before cumulative effect of change in                   Yen    184.55        151.51         79.50
           accounting principle
         Cumulative effect of change in accounting principle                     4.15             -             -
                                                                              -------       -------       -------
         Net income                                                     Yen    188.70        151.51         79.50
                                                                              =======       =======       =======

Dividends per common share (note 12)                                    Yen     25.00         21.00         17.00
                                                                              =======       =======       =======
</TABLE>

See accompanying notes to consolidated financial statements.


                                      52
<PAGE>


                          CANON INC. AND SUBSIDIARIES

                Consolidated Statements of Stockholders' Equity

                  Years ended December 31, 2001, 2000 and 1999

<TABLE>
                                                                                    Millions of yen
                                                                        ----------------------------------------
                                                                           2001           2000            1999
                                                                        ----------     ----------     ----------
<S>                                                                            <C>           <C>           <C>
Common stock:
     Balance at beginning of year                                  Yen     164,796        163,969        163,033
     Conversion of convertible debt (notes 11 and 13)                          491            668            936
     Shares issued for acquisition of minority interests
       (notes 11 and 13)                                                         -            159              -
                                                                        ----------     ----------     ----------

     Balance at end of year                                                165,287        164,796        163,969
                                                                        ----------     ----------     ----------
Additional paid-in capital:
     Balance at beginning of year                                          391,939        376,848        375,913
     Conversion of convertible debt and other (notes 11 and 13)                517            661            935
     Shares issued for acquisition of minority interests
       (notes 11 and 13)                                                         -         14,430              -
                                                                        ----------     ----------     ----------

     Balance at end of year                                                392,456        391,939        376,848
                                                                        ----------     ----------     ----------
Legal reserve:
     Balance at beginning of year                                           35,584         33,518         31,396
     Transfers from retained earnings (note 12)                              2,746          2,066          2,122
                                                                        ----------     ----------     ----------
     Balance at end of year                                                 38,330         35,584         33,518
                                                                        ----------     ----------     ----------
Retained earnings:
     Balance at beginning of year                                          853,177        735,975        682,663
     Net income for the year                                               167,561        134,088         70,234
     Cash dividends (note 12)                                              (20,144)       (14,820)       (14,797)
     Transfers to legal reserve (note 12)                                   (2,746)        (2,066)        (2,122)
     Other                                                                       -              -             (3)
                                                                        ----------     ----------     ----------
     Balance at end of year                                                997,848        853,177        735,975
                                                                        ----------     ----------     ----------
Accumulated other comprehensive income (loss)
  (notes 3, 9, 10, 14 and 17):
     Balance at beginning of year                                         (146,582)      (108,307)       (97,485)
     Other comprehensive income (loss) for the year, net of tax             11,414        (38,275)       (10,822)
                                                                        ----------     ----------     ----------
     Balance at end of year                                               (135,168)      (146,582)      (108,307)
                                                                        ----------     ----------     ----------
Treasury stock:
     Balance at beginning of year                                                -              -              -
     Purchase                                                                 (277)             -              -
                                                                        ----------     ----------     ----------
     Balance at end of year                                                   (277)             -              -
                                                                        ----------     ----------     ----------

         Total stockholders' equity                                Yen   1,458,476      1,298,914      1,202,003
                                                                        ==========     ==========     ==========

Disclosure of comprehensive income:
     Net income for the year                                       Yen     167,561        134,088         70,234
     Other comprehensive income (loss) for the year, net of tax
       (note 14)                                                            11,414        (38,275)       (10,822)
                                                                        ----------     ----------     ----------

         Total comprehensive income for the year                   Yen     178,975         95,813         59,412
                                                                        ==========     ==========     ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      53
<PAGE>


                          CANON INC. AND SUBSIDIARIES

                     Consolidated Statements of Cash Flows

                  Years ended December 31, 2001, 2000 and 1999

<TABLE>
                                                                                 Millions of yen
                                                                      -------------------------------------
                                                                         2001          2000          1999
                                                                      ---------     ---------     ---------
<S>                                                                     <C>           <C>            <C>
 Net income                                                        Yen  167,561       134,088        70,234

 Adjustments to reconcile net income to net cash provided by
   operating activities:
      Depreciation and amortization                                     152,300       146,477       158,111
      Loss on disposal of property, plant and equipment                  20,323        14,080         8,814
      Gain on securities contributed to retirement
        benefit trust (notes 3 and 9)                                   (15,536)            -             -
      Deferred income taxes                                               2,172       (10,280)       (5,972)
      Decrease (increase) in trade receivables                           47,844       (52,751)       (1,231)
      Decrease (increase) in inventories                                 73,858       (27,884)      107,913
      Increase (decrease) in trade payables                            (161,157)      100,588       (22,950)
      Increase (decrease) in income taxes                                10,561         6,917       (13,966)
      Increase in accrued expenses                                        2,177        21,343         3,206
      Other, net                                                          5,649        14,038         4,758
                                                                      ---------     ---------     ---------
          Net cash provided by operating activities                     305,752       346,616       308,917
                                                                      ---------     ---------     ---------

 Cash flows from investing activities:
      Capital expenditure                                              (207,674)     (170,986)     (200,386)
      Proceeds from sale of property,
        plant and equipment                                              10,224         5,752         6,104
      Payment for purchase of marketable securities                      (9,225)       (3,082)      (12,349)
      Proceeds from sale of marketable securities                         9,473         2,428         6,637
      Payment for purchase of investments                                (2,452)      (14,702)       (9,770)
      Other                                                               7,062       (32,214)        8,782
                                                                      ---------     ---------     ---------
          Net cash used in investing activities                        (192,592)     (212,804)     (200,982)
                                                                      ---------     ---------     ---------
</TABLE>

                                      54
<PAGE>


                          CANON INC. AND SUBSIDIARIES

                     Consolidated Statements of Cash Flows

                  Years ended December 31, 2001, 2000 and 1999

<TABLE>
                                                                          Millions of yen
                                                             -------------------------------------
                                                                 2001        2000         1999
                                                                 ----        ----         ----

 Cash flows from financing activities (note 13):
<S>                                                               <C>        <C>          <C>
      Proceeds from long-term debt                      Yen       7,417      17,358       23,811
      Repayment of long-term debt                               (40,423)    (32,529)     (75,005)
      Decrease in short-term loans                              (64,292)    (67,923)     (51,871)
      Dividends paid (note 12)                                  (20,144)    (14,820)     (14,797)
      Other                                                      (3,786)     (2,683)      (4,961)
                                                             ----------  ----------   ----------
          Net cash used in financing activities                (121,228)   (100,597)    (122,823)
                                                             ----------  ----------   ----------

 Effect of exchange rate changes                                 20,340     (19,706)      (3,841)
   on cash and cash equivalents                              ----------  ----------   ----------

 Net change in cash and cash equivalents                         12,272      13,509      (18,729)

 Cash and cash equivalents at beginning of year                 493,962     480,453      499,182
                                                             ----------  ----------   ----------

 Cash and cash equivalents at end of year               Yen     506,234     493,962      480,453
                                                             ==========  ==========   ==========



 Cash paid during the year for:
      Interest                                          Yen      10,722      14,860       19,321
      Income taxes                                              102,421      90,560      103,877
                                                             ==========  ==========   ==========
</TABLE>


            See accompanying notes to consolidated financial statements.

                                      55
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(1)    Basis of Presentation and Significant Accounting Policies
       ---------------------------------------------------------
       (a)   Description of Business
             -----------------------
             The Company and subsidiaries (collectively "Canon") is a
             high-technology oriented company which operates globally and has
             numerous core businesses. Originally a 35mm camera maker, Canon is
             now one of the world's leading manufacturers in other fields, such
             as copying machines and computer peripherals, mainly laser beam
             and bubble jet printers. Canon's products also include business
             systems such as faxes, computers, micrographics and calculators.
             Canon's camera business consists mainly of SLR cameras, compact
             cameras, digital cameras and video camcorders. Optical related
             products include steppers and aligners used in semiconductor chip
             production, broadcasting lenses and medical equipment. Canon's
             sales in the year ended December 31, 2001 were distributed as
             follows: copying machines- 31%, computer peripherals- 35%,
             business systems- 11%, cameras- 13%, and optical and other
             products- 10%.

             Sales are made principally under the Canon brand name, almost
             entirely through sales subsidiaries. These subsidiaries are
             responsible for marketing and distribution and primarily sell to
             retail dealers in their geographical area. Approximately 70% of
             consolidated net sales in the year ended December 31, 2001 were
             generated outside Japan, with 34% in Americas, 27% in Europe and
             9% in other areas.

             Canon's manufacturing operations are conducted primarily at 17
             plants in Japan and 13 overseas plants which are located in the
             United States, Germany, France, Taiwan, China, Malaysia, Thailand,
             and Mexico.

             Canon sells laser beam printers on an OEM basis to Hewlett-Packard
             Co.; such sales constituted approximately 21% of consolidated
             sales for the year ended December 31, 2001.

       (b)   Basis of Presentation
             ---------------------
             The Company and its domestic subsidiaries maintain their books of
             account in conformity with financial accounting standards of
             Japan. Foreign subsidiaries maintain their books in conformity
             with financial accounting standards of the countries of their
             domicile.

             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.

       (c)   Principles of Consolidation
             ---------------------------
             The consolidated financial statements include the accounts of
             Canon after elimination of all significant intercompany balances
             and transactions.

       (d)   Cash Equivalents
             ----------------
             For purposes of the statements of cash flows, Canon considers all
             highly-liquid debt instruments purchased with an original maturity
             of three months or less to be cash equivalents.

                                                                    (Continued)

                                      56
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       (e)   Translation of Foreign Currencies
             ---------------------------------
             Foreign currency financial statements have been translated in
             accordance with Statement of Financial Accounting Standards No. 52
             ("SFAS 52"), "Foreign Currency Translation". Under SFAS 52, assets
             and liabilities of the Company's subsidiaries located outside
             Japan are translated into Japanese yen at the rates of exchange in
             effect at the balance sheet date. Gains and losses resulting from
             translation of financial statements are excluded from the
             consolidated statement of income and are reported in other
             comprehensive income (loss). Income and expense items are
             translated at the average exchange rates prevailing during the
             year. Gain and losses resulting from other foreign currency
             transactions are included in other income (deductions).

       (f)   Marketable Securities and Marketable Investments
             ------------------------------------------------
             Canon classifies its debt and equity securities into one of three
             categories: trading, available-for-sale, or held-to-maturity
             securities. Trading securities are bought and held principally for
             the purpose of selling them in the near term. Held-to-maturity
             securities are those securities in which Canon has the ability and
             intent to hold the security until maturity. All securities not
             included in trading or held-to-maturity are classified as
             available-for-sale.

             Trading and available-for-sale securities are recorded at fair
             value. Held-to-maturity securities are recorded at amortized cost,
             adjusted for the amortization or accretion of premiums or
             discounts. Unrealized holding gains and losses on trading
             securities are included in earnings. 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 until realized.

       (g)   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.

       (h)   Investments in Affiliated Companies
             -----------------------------------
             Of the investments in affiliated companies owned 20% to 50%,
             certain investments are accounted for on the equity basis and the
             others are carried at cost. Canon's equity in undistributed
             earnings of the latter companies is not significant.

             Canon's share of the net earnings (loss) of companies carried at
             equity, included in other income (deductions), and dividends
             received from those companies for the years ended December 31,
             2001, 2000 and 1999 are as follows:

                                                         Millions of yen
                                                   --------------------------
                                                   2001       2000       1999
                                                   ----       ----       ----

                 Net earnings (loss)         Yen   (1,845)    10,817     (2,848)
                 Dividends received                   401         67         40

                                                                    (Continued)

                                      57
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       (i)   Depreciation
             ------------
             Depreciation is calculated principally by the declining-balance
             method over the estimated useful lives of the assets. The
             depreciation period ranges from 3 years to 60 years for buildings
             and 2 years to 20 years for machinery and equipment.

       (j)   Goodwill and Other Intangible Assets
             ------------------------------------
             Goodwill, which represents the excess cost over the net tangible
             and identifiable intangible assets acquired at acquisition dates
             of investments in subsidiaries and affiliated companies, is being
             amortized on a straight-line basis over the expected periods to be
             benefited, generally 10 years. Canon assesses the recoverability
             of this intangible asset by determining whether the amortization
             of the goodwill balance over its remaining life can be recovered
             through undiscounted future cash flows of the acquired operation.
             The amount of goodwill impairment, if any, is measured based on
             projected discounted future operating cash flows using a discount
             rate reflecting Canon's average cost of funds.

             Other intangible assets principally consist of software for
             internal-use. Certain costs incurred to purchase or develop
             software for internal-use during the application development stage
             are capitalized. The cost of software is amortized on a
             straight-line basis over the estimated useful life, which is
             generally 5 years.

       (k)   Income Taxes
             ------------
             Canon accounts for income taxes in accordance with Statement of
             Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting
             for Income Taxes". Under the asset and liability method of SFAS
             109, deferred tax assets and liabilities are recognized for the
             estimated future tax consequences attributable to differences
             between the financial statement carrying amounts of existing
             assets and liabilities and their respective tax bases and
             operating loss and tax credit carryforwards. Deferred tax assets
             and liabilities are measured using enacted tax rates expected to
             apply to taxable income in the years in which those temporary
             differences are expected to be recovered or settled. Under SFAS
             109, the effect on deferred tax assets and liabilities of a change
             in tax rates is recognized in income in the period that includes
             the enactment date.

       (l)   Employee Retirement and Severance Benefits
             ------------------------------------------
             The Company and certain of its subsidiaries have various employee
             retirement and severance defined benefit plans covering
             substantially all employees who meet eligibility requirements (see
             note 10).

       (m)   Research and Development and Advertising
             ----------------------------------------
             The costs of research and development and advertising are expensed
             as incurred.

       (n)   Shipping and Handling Costs
             ---------------------------

             Shipping and handling costs totaled Yen33,835 million, Yen31,633
             million and Yen30,244 million for the years ended December 31,
             2001, 2000 and 1999, respectively, and are included in selling,
             general and administrative expenses in the consolidated
             statements of income.

                                                                    (Continued)

                                      58
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       (o)   Derivative Financial Instruments
             --------------------------------
             On January 1, 2001, Canon adopted Statement of Financial
             Accounting Standards No. 133 ("SFAS 133"), "Accounting for
             Derivative Instruments and Hedging Activities" and No. 138 ("SFAS
             138"), "Accounting for Certain Derivative Instruments and Certain
             Hedging Activities, an amendment of FASB Statement No. 133". Both
             standards establish accounting and reporting standards for
             derivative instruments and for hedging activities, and require
             that an entity recognize all derivatives as either assets or
             liabilities in the balance sheet and measure those instruments at
             fair value.

             All derivatives are recognized on the consolidated balance sheet
             at their fair value. On the date the derivative contract is
             entered into, Canon designates the derivative as either a hedge of
             the fair value of a recognized asset or liability or of an
             unrecognized firm commitment ("fair value" hedge), a hedge of a
             forecasted transaction or the variability of cash flows to be
             received or paid related to a recognized asset or liability ("cash
             flow" hedge), a foreign-currency fair-value or cash-flow hedge
             ("foreign currency" hedge), or a hedge of a net investment in a
             foreign operation. Canon formally documents all relationships
             between hedging instruments and hedged items, as well as its
             risk-management objective and strategy for undertaking various
             hedge transactions. This process includes linking all derivatives
             that are designated as fair-value, cash-flow, or foreign-currency
             hedges to specific assets and liabilities on the consolidated
             balance sheet or to specific firm commitments or forecasted
             transactions. Canon also formally assesses, both at the hedge's
             inception and on an ongoing basis, whether the derivatives that
             are used in hedging transactions are highly effective in
             offsetting changes in fair values or cash flows of hedged items.
             When it is determined that a derivative is not highly effective as
             a hedge or that it has ceased to be a highly effective hedge,
             Canon discontinues hedge accounting prospectively.

             Changes in the fair value of a derivative that is highly effective
             and that is designated and qualifies as a fair-value hedge, along
             with the loss or gain on the hedged asset or liability or
             unrecognized firm commitment of the hedged item that is
             attributable to the hedged risk are recorded in earnings. Changes
             in the fair value of a derivative that is highly effective and
             that is designated and qualifies as a cash-flow hedge are recorded
             in other comprehensive income (loss), until earnings are affected
             by the variability in cash flows of the designated hedged item.
             Changes in the fair value of derivatives that are highly effective
             as hedges and that are designated and qualify as foreign-currency
             hedges are recorded in either earnings or other comprehensive
             income (loss), depending on whether the hedge transaction is a
             fair-value hedge or a cash-flow hedge. However, if a derivative is
             used as a hedge of a net investment in a foreign operation, its
             changes in fair value, to the extent effective as a hedge, are
             recorded in the cumulative translation adjustments account within
             other comprehensive income (loss).

             Canon discontinues hedge accounting prospectively when it is
             determined that the derivative is no longer effective in
             offsetting changes in the fair value or cash flows of the hedged
             item, the derivative expires or is sold, terminated, or exercised,
             the derivative is dedesignated as a hedging instrument, because it
             is unlikely that a forecasted transaction will occur, a hedged
             firm commitment no longer meets the definition of a firm
             commitment, or management determines that designation of the
             derivative as a hedging instrument is no longer appropriate.

                                                                    (Continued)

                                       59
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


             When hedge accounting is discontinued because it is determined
             that the derivative no longer qualifies as an effective fair-value
             hedge, Canon continues to carry the derivative on the consolidated
             balance sheet at its fair value, and no longer adjusts the hedged
             asset or liability for changes in fair value. The adjustment of
             the carrying amount of the hedged asset or liability is accounted
             for in the same manner as other components of the carrying amount
             of that asset or liability. When hedge accounting is discontinued
             because the hedged item no longer meets the definition of a firm
             commitment, Canon continues to carry the derivative on the
             consolidated balance sheet at its fair value, removes any asset or
             liability that was recorded pursuant to recognition of the firm
             commitment from the consolidated balance sheet and recognizes any
             gain or loss in earnings. When hedge accounting is discontinued
             because it is probable that a forecasted transaction will not
             occur, Canon continues to carry the derivative on the consolidated
             balance sheet at its fair value, and gains and losses that were
             accumulated in other comprehensive income (loss) are recognized
             immediately in earnings. In all other situations in which hedge
             accounting is discontinued, Canon continues to carry the
             derivative at its fair value on the consolidated balance sheet,
             and recognizes any changes in its fair value in earnings.

             The cumulative effect adjustment upon the adoption of SFAS 133 and
             138, net of the related income tax effect, resulted in an increase
             to net income of approximately Yen3,692 million and a decrease to
             other comprehensive income (loss) of approximately Yen2,401
             million.

             Prior to the adoption of SFAS 133 and 138, derivative financial
             instruments that were designated and effective to hedge forecasted
             transactions for which there was no firm commitment were marked to
             market, and gains and losses on such derivatives were recorded in
             other income (deductions). Foreign currency derivative financial
             instruments generally qualified for hedge accounting if their
             maturity dates corresponded to hedged existing assets and
             liabilities denominated in foreign currencies, and gains and
             losses on such derivative financial instruments were recognized
             and recorded in other income (deductions) at end of year and at
             settlement, as were the offsetting foreign exchange losses and
             gains on the hedged items. Gains and losses on the hedging
             derivative financial instruments that were designated and
             effective as hedges of firm commitments were deferred and
             recognized in income when the sale of the hedged items occurred.
             Amounts receivable or payable under derivative financial
             instruments used to manage interest rate risks arising from
             financial assets and liabilities were recognized as a component of
             interest income or expense of such related underlying assets or
             liabilities (see note 16).

       (p)   Issuance of Stock by Subsidiaries
             ---------------------------------
             The change in the Company's proportionate share of subsidiary
             equity resulting from issuance of stock by the subsidiaries is
             accounted for as an equity transaction.

                                                                    (Continued)

                                       60
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       (q)   Earnings per Share
             ------------------
             Basic earnings per share have been computed by dividing net income
             available to common stockholders by the weighted-average number of
             common shares outstanding during each year. Diluted earnings per
             share reflect the potential dilution and have been computed on the
             basis that all convertible debentures were converted at beginning
             of the year or at time of issuance (if later), and that all
             dilutive warrants were exercised (less the number of treasury
             shares assumed to be purchased from the proceeds using the average
             market price of the Company's common shares).

       (r)   Use of Estimates
             ----------------
             Management of Canon has made a number of estimates and assumptions
             that affect the reported amounts of assets, liabilities, revenues
             and expenses, and the disclosure of contingent assets and
             liabilities to prepare these financial statements in conformity
             with generally accepted accounting principles. Actual results
             could differ from those estimates.

       (s)   Long-Lived Assets and Long-Lived Assets to Be Disposed Of
             ---------------------------------------------------------
             Canon's long-lived assets and certain identifiable intangibles are
             reviewed for impairment whenever events or changes in
             circumstances indicate that the carrying amount of an asset may
             not be recoverable. Recoverability of assets to be held and used
             is measured by a comparison of the carrying amount of an asset to
             future net cash flows (undiscounted and without interest charges)
             expected to be generated by the asset. If such assets are
             considered to be impaired, the impairment to be recognized is
             measured by the amount by which the carrying amount of the assets
             exceed the fair value of the assets. Assets to be disposed of are
             reported at the lower of the carrying amount or fair value less
             costs to sell.

       (t)   Revenue Recognition
             -------------------
             Canon recognizes revenue when persuasive evidence of an
             arrangement including title transfer exists, delivery has
             occurred, the sales price is fixed or determinable, and
             collectibility is probable. These criteria are met for
             mass-merchandising products such as printers and cameras at the
             time when the product is received by the customer, and for
             products with acceptance provisions such as steppers at the time
             when the product is received by the customer and the specific
             criteria of the product is demonstrated by Canon with only certain
             inconsequential or perfunctory work left to be performed by the
             customer.

       (u)   Accounting for Sales Incentives
             -------------------------------
             In May 2000, the Emerging Issues Task Force reached a final
             consensus on Issue 00-14 ("EITF 00-14"), "Accounting for Certain
             Sales Incentives". EITF 00-14 addresses accounting and reporting
             standards for sales incentives such as coupons or rebates that are
             provided by vendors or manufacturers and are exercisable by
             customers at the point of sale.

             In January 2001, the Emerging Issues Task Force also reached a
             final consensus on a portion of Issue 00-22 ("EITF 00-22"),
             "Accounting for "Points" and Certain Other Time-Based or

                                                                    (Continued)

                                       61
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


             Volume-Based Sales Incentive Offers, and Offers for Free Products
             or Services to Be Delivered in the Future". EITF 00-22 addresses
             accounting and reporting standards for sales incentives such as
             royalty programs or rebates that are offered to customers by
             vendors only if the customer completes a specified cumulative
             level of revenue transactions with the vendor or remains a
             customer of the vendor for a specified time period.

             In April 2001, the Emerging Issues Task Force also reached a final
             consensus on Issue 00-25 ("EITF 00-25"), "Vendor Income Statement
             Characterization of Consideration Paid to a Reseller of the
             Vendor's Products". EITF 00-25 addresses the income statement
             characterization of consideration, other than that directly
             addressed in EITF 00-14, from a vendor to an entity that purchases
             the vendor's products for resale.

             In November 2001, the Emergency Issues Task Force approved the
             codification of the above consensuses in EITF 01-9, "Accounting
             for Consideration Given by a Vendor to a Customer or a Reseller of
             the Vendor's Products."

             Canon adopted these consensuses on a prospective basis from the
             fiscal year beginning January 1, 2001. However, consolidated
             financial statements for the prior period have been reclassified
             to comply with the income statement display requirements. The
             adoption results in a reduction in net sales for the years ended
             December 31, 2000 and 1999 of Yen84,883 million and Yen91,369
             million, respectively, and a corresponding decrease in selling,
             general and administrative expenses, with no effect on net
             income. The adoption of these consensuses did not have a
             material impact on the consolidated financial statements.

       (v)   New Accounting Standards
             ------------------------
             In June 2001, the Financial Accounting Standards Board issued
             Statement of Financial Accounting Standards No. 141 ("SFAS 141"),
             "Business Combinations", and Statement of Financial Accounting
             Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible
             Assets". SFAS 141 requires that the purchase method of accounting
             be used for all business combinations completed after June 30,
             2001. SFAS 141 also specifies the types of acquired intangible
             assets that are required to be recognized and reported separately
             from goodwill and those acquired intangible assets that are
             required to be included in goodwill. SFAS 142 will require that
             goodwill no longer be amortized, but instead tested for impairment
             at least annually. SFAS 142 will also require recognized
             intangible assets be amortized over their respective estimated
             useful lives and reviewed for impairment in accordance with
             Statement of Financial Accounting Standards No. 144 ("SFAS 144"),
             "Accounting for the Impairment or Disposal of Long-Lived Assets".
             Any recognized intangible asset determined to have an indefinite
             useful life will not be amortized, but instead tested for
             impairment until its life is determined to no longer be
             indefinite.

             Canon adopted the provisions of SFAS 141 and SFAS 142 on January
             1, 2002, with the exception of the immediate requirement to use
             the purchase method of accounting for all future business
             combinations completed after June 30, 2001. However, any goodwill
             and any intangible asset determined to have an indefinite useful
             life that is acquired in a business combination completed after
             June 30, 2001 will not be amortized. Goodwill and intangible
             assets acquired in business combinations completed before July 1,
             2001 continued to be amortized through December 31, 2001.

                                                                    (Continued)

                                       62
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


             SFAS 141 requires Canon to evaluate its existing intangible assets
             and goodwill and to make any necessary reclassifications in order
             to conform to the new separation requirements at the date of
             adoption. Upon adoption of SFAS 142, Canon is required to reassess
             the useful lives and residual values of all intangible assets and
             make any necessary amortization period adjustments by March 31,
             2002.

             In connection with the transitional impairment evaluation, SFAS
             142 will require Canon to perform an assessment of whether there
             is an indication that goodwill is impaired as of January 1, 2002.
             To accomplish this, Canon must (1) identify its reporting units,
             (2) determine the carrying value of each reporting unit by
             assigning the assets and liabilities, including the existing
             goodwill and intangible assets to those reporting units, and (3)
             determine the fair value of each reporting unit. This first step
             of the transitional assessment is required to be completed by June
             30, 2002. If the carrying value of any reporting unit exceeds its
             fair value, then detailed fair values for each of the assigned
             assets (excluding goodwill) and liabilities will be determined to
             calculate the amount of goodwill impairment, if any. This second
             step is required to be completed as soon as possible, but no later
             than December 31, 2002. Any transitional impairment loss resulting
             from the adoption will be recognized as the effect of a change in
             accounting principle in Canon's consolidated statement of income.
             The adoption of SFAS 141 did not have a material effect on Canon's
             consolidated financial position and results of operations.
             Management does not anticipate that the adoption of SFAS 142 will
             have a material effect on Canon's consolidated financial position
             and results of operations.

             In June 2001, the Financial Accounting Standards Board issued
             Financial Accounting Standards No. 143 ("SFAS 143"), "Accounting
             for Asset Retirement Obligations". SFAS 143 applies to legal
             obligations associated with the retirement of long-lived assets
             that result from the acquisition, construction, development and
             (or) the normal operation of a long-lived asset, except for
             certain obligations of lessees. SFAS 143 requires that the fair
             value of a liability for an asset retirement obligation be
             recognized in the period in which it is incurred if a reasonable
             estimate of fair value can be made. The associated asset
             retirement costs are capitalized as part of the carrying amount of
             the long-lived asset and subsequently allocated to expense over
             the asset's useful life. Canon is required to adopt the provisions
             of SFAS 143 on January 1, 2003. Currently, the effect on Canon's
             consolidated financial statements of adopting SFAS 143 has not
             been determined.

                                                                    (Continued)

                                     63
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


             In August 2001, the Financial Accounting Standards Board issued
             SFAS 144, which supersedes both Statement of Financial Accounting
             Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of
             Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and
             the accounting and reporting provisions of APB Opinion No. 30
             ("Opinion 30"), "Reporting the Results of Operations--Reporting
             the Effects of Disposal of a Segment of a Business, and
             Extraordinary, Unusual and Infrequently Occurring Events and
             Transactions", for the disposal of a segment of a business (as
             previously defined in that Opinion). SFAS 144 retains the
             fundamental provisions in SFAS 121 for recognizing and measuring
             impairment losses on long-lived assets held for use and long-lived
             assets to be disposed of by sale, while also resolving significant
             implementation issues associated with SFAS 121. For example, SFAS
             144 provides guidance on how a long-lived asset that is used as
             part of a group should be evaluated for impairment, establishes
             criteria for when a long-lived asset is held for sale, and
             prescribes the accounting for a long-lived asset that will be
             disposed of other than by sale. SFAS 144 retains the basic
             provisions of Opinion 30 on how to present discontinued operations
             in the income statement but broadens that presentation to include
             a component of an entity (rather than a segment of a business).
             Unlike SFAS 121, an impairment assessment under SFAS 144 will
             never result in a write-down of goodwill. Rather, goodwill is
             evaluated for impairment under SFAS 142. Canon adopted the
             provision of SFAS 144 on January 1, 2002. The adoption of SFAS 144
             did not have a material effect on Canon's consolidated financial
             position and results of operations.

       (w)   Reclassifications
             -----------------
             Certain reclassifications have been made to the prior years'
             consolidated financial statements to conform the presentation used
             for the year ended December 31, 2001. Certain gains and losses on
             sale and disposal of property, plant and equipment, which were
             previously recorded in other income (deductions), are recorded in
             selling, general and administrative expenses in the year ended
             December 31, 2001. As a result of the reclassification, operating
             profit for the years ended December 31, 2000 and 1999 decreased by
             Yen11,868 million and Yen7,712 million, respectively.

(2)    Foreign Operations
       ------------------
       Amounts included in the consolidated financial statements relating to
       subsidiaries operating in foreign countries are summarized as follows:

                                                 Millions of yen
                                        ----------- ------------------------
                                        2001            2000            1999
                                        ----            ----            ----

       Total assets             Yen   1,074,856      1,016,908         917,810
       Net assets                       482,986        381,553         326,631
       Net sales                      2,048,993      1,864,123       1,776,688
       Net income                        31,903         37,519          32,876

                                                                    (Continued)

                                     64
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(3)    Marketable Securities and Marketable Investments
       ------------------------------------------------
       Marketable securities and marketable investments consist of
       available-for-sale securities. The carrying amount, gross unrealized
       holding gains, gross unrealized holding losses and fair value for such
       securities by major security type at December 31, 2001 and 2000 are as
       follows:

<TABLE>
                                                                              Millions of yen
                                                                  --------------------------------------------
                                                                             Gross        Gross
                                                                           Unrealized  Unrealized
                                                                            Holding      Holding
                                                                  Cost       Gains       Losses     Fair Value
                                                                  ----       -----       ------     ----------
<S>                                                                <C>         <C>           <C>       <C>
       2001:
          Current:
             Available-for-sale:
                Japanese and foreign
                  governmental bond securities             Yen        55           -           -           55
                Corporate debt securities                          3,623          59           -        3,682
                Bank debt securities                                  91           -           -           91
                Equity securities                                  1,008           2          66          944
                                                               ---------   ---------   ---------    ---------

                                                           Yen     4,777          61          66        4,772
                                                               =========   =========   =========    =========
          Noncurrent:
             Available-for-sale:
                Japanese and foreign
                  governmental bond securities             Yen       201           -           -          201
                Corporate debt securities                          5,553         267           -        5,820
                Fund trusts                                        1,891          82           2        1,971
                Equity securities                                  6,430       5,635         646       11,419
                                                               ---------   ---------   ---------    ---------

                                                           Yen    14,075       5,984         648       19,411
                                                               =========   =========   =========    =========
</TABLE>

                                                                    (Continued)

                                       65
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

<TABLE>
                                                                              Millions of yen
                                                                 ---------------------------------------------
                                                                             Gross        Gross
                                                                           Unrealized  Unrealized
                                                                            Holding      Holding
                                                                  Cost       Gains       Losses     Fair Value
                                                                  ----       -----       ------     ----------
<S>                                                               <C>         <C>          <C>         <C>
       2000:
          Current:
             Available-for-sale:
                Japanese and foreign
                  governmental bond securities             Yen        49           -           -           49
                Corporate debt securities                          2,734         273           -        3,007
                Bank debt securities                                  91           -           -           91
                Fund trusts                                        2,977         540           -        3,517
                Equity securities                                  3,260       1,116          97        4,279
                                                               ---------   ---------   ---------    ---------

                                                           Yen     9,111       1,929          97       10,943
                                                               =========   =========   =========    =========
          Noncurrent:
             Available-for-sale:
                Japanese and foreign
                  governmental bond securities             Yen       174           -           -          174
                Corporate debt securities                          5,133         126           -        5,259
                Bank debt securities                                 149           1           -          150
                Fund trusts                                           40           -           1           39
                Equity securities                                 26,696      31,430           7       58,119
                                                               ---------   ---------   ---------    ---------

                                                           Yen    32,192      31,557           8       63,741
                                                               =========   =========   =========    =========
</TABLE>

       Net unrealized gains on available-for-sale securities, net of related
       taxes and minority interests, decreased by Yen13,603 million and
       Yen34,532 million in the years ended December 31, 2001 and 2000,
       respectively, and increased by Yen41,257 million in the year ended
       December 31, 1999.

       Maturities of marketable securities and marketable investments
       classified as available-for-sale were as follows at December 31, 2001:

                                                           Millions of yen
                                                       ----------------------
                                                          Cost     Fair Value
                                                          ----     ----------

       Due within one year                          Yen    3,824       3,883
       Due after one year through five years               2,074       2,387
       Due after five years                                5,516       5,550
       Equity securities                                   7,438      12,363
                                                       ---------   ---------

                                                    Yen   18,852      24,183
                                                       =========   =========

       Proceeds from sale of available-for-sale securities were Yen9,473
       million, Yen2,428 million and Yen6,637 million in the years ended
       December 31, 2001, 2000 and 1999, respectively.

                                                                    (Continued)

                                       66
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       In June 2001, Canon contributed certain marketable equity securities,
       not including those of its subsidiaries and affiliated companies, to an
       established employee retirement benefit trust, with no cash proceeds
       thereon. The fair value of those securities at the time of contribution
       was Yen38,954 million. Upon contribution of those available-for-sale
       securities, the net unrealized gains amounting to Yen15,536 million were
       realized and were accounted for as "Other, net" in the consolidated
       statements of income.

       Realized gains and losses during the years ended December 31, 2000 and
1999 were insignificant.

(4)    Trade Receivables
       -----------------
       Trade receivables are summarized as follows:
                                                              Millions of yen
                                                         ----------------------
                                                             2001         2000
                                                         ---------    ---------

       Notes                                        Yen     43,563       44,189
       Accounts                                            424,163      447,218
       Less allowance for doubtful receivables              11,091       11,617
                                                         ---------    ---------

                                                    Yen    456,635      479,790
                                                         =========    =========

(5)    Inventories
       -----------
       Inventories comprised the following:
                                                              Millions of yen
                                                             2001         2000

       Finished goods                               Yen    323,910      354,796
       Work in process                                     106,255      121,278
       Raw materials                                        18,135       14,619
                                                         ---------    ---------

                                                    Yen    448,300      490,693
                                                         =========    =========

                                                                    (Continued)

                                     67
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(6)    Property, Plant and Equipment
       -----------------------------
       Property, plant and equipment are stated at cost less accumulated
       depreciation and are summarized as follows:

                                                            Millions of yen
                                                      --------------------------
                                                           2001          2000
                                                      ------------  ------------
       Land                                          Yen   157,251       155,358
       Buildings                                           691,661       652,779
       Machinery and equipment                             936,281       918,490
       Construction in progress                             61,039        34,819
                                                      ------------  ------------
                                                         1,846,232     1,761,446

       Less accumulated depreciation                     1,025,107       989,852
                                                      ------------  ------------
                                                     Yen   821,125       771,594
                                                      ============  ============

(7)    Short-term Loans and Long-term Debt
       -----------------------------------
       Short-term loans consisted of the following:

                                                            Millions of yen
                                                      --------------------------
                                                           2001          2000
                                                      ------------  ------------
       Bank borrowings                               Yen    62,103        65,911
       Acceptances payable by foreign
         subsidiaries                                       84,253       144,282
       Long-term debt due within one year                   53,748        38,495
                                                         ---------     ---------
                                                     Yen   200,104       248,688
                                                         =========     =========

       The weighted average interest rates on short-term loans outstanding at
       December 31, 2001 and 2000 were 2.76% and 6.05%, respectively.

       At December 31, 2001, unused short-term credit facilities for issuance
       of commercial paper amounted to Yen65,975 million.

       A substantial portion of the acceptances payable by foreign subsidiaries
       was secured by the subsidiaries' inventories and trade receivables.

                                                                    (Continued)

                                       68
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       Long-term debt consisted of the following:

<TABLE>
                                                                        Millions of yen
                                                                        ----------------
                                                                        2001        2000
                                                                        ----        ----
<S>                                                                    <C>         <C>
       Loans, principally from banks, maturing in
         installments through 2030;  bearing weighted
         average interest of 3.93% and 3.40% at
         December 31, 2001 and 2000, respectively,
         partially secured by mortgage of property,
         plant and equipment and marketable securities         Yen     37,850      49,574
       2-7/20% Japanese yen notes, due 2001                                 -      19,920
       2-1/20% Japanese yen notes, due 2002                             5,000       5,000
       2-3/5% Japanese yen notes, due 2002                             20,479      20,000
       1-7/50% Japanese yen notes, due 2002                             2,000       2,000
       1-3/5% Japanese yen notes, due 2002                             10,000      10,000
       2-3/10% Japanese yen notes, due 2003                             5,000       5,000
       1-53/100% Japanese yen notes, due 2003                           5,000       5,000
       2-23/40% Japanese yen notes, due 2004                           10,000      10,000
       2-1/40% Japanese yen notes, due 2004                            10,000      10,000
       1-22/25% Japanese yen notes, due 2005                            5,000       5,000
       2-19/20% Japanese yen notes, due 2007                           10,000      10,000
       2-27/100% Japanese yen notes, due 2008                          10,000      10,000
       1% Japanese yen convertible debentures, due 2002                 3,825       4,746
       1-2/10% Japanese yen convertible debentures,
         due 2005                                                       5,172       5,221
       1-3/10% Japanese yen convertible debentures,                     9,948       9,959
         due 2008                                                   ---------   ---------
                                                                      149,274     181,420
       Less amount due within one year                                 53,748      38,495
                                                                    ---------   ---------
                                                               Yen     95,526     142,925
                                                                    =========   =========
</TABLE>

                                                                    (Continued)

                                     69
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       The aggregate annual maturities of long-term debt outstanding at
       December 31, 2001 were as follows:

                                            Millions of yen
                                            ---------------

              2002                        Yen      53,573
              2003                                 20,466
              2004                                 25,202
              2005                                 11,742
              2006                                    433
              Later years                          33,858
                                                ---------

                                            Yen   149,274

       Property, plant and equipment with a book value at December 31, 2001 of
       Yen10,713 million were mortgaged to secure long-term debt.

       As is customary in Japan, both short-term and long-term bank loans are
       made under general agreements which provide that security and guarantees
       for present and future indebtedness will be given upon request of the
       bank, and that the bank shall have the right to offset cash deposits
       against obligations that have become due or, in the event of default,
       against all obligations due the bank. Long-term agreements with lenders
       other than banks also generally provide that Canon must give additional
       security upon request of the lender.

       The 1% Japanese yen convertible debentures due 2002 are currently
       convertible into approximately 2,555,000 shares of common stock at a
       conversion price of Yen1,497.00 per share.

       The 1-2/10% Japanese yen convertible debentures due 2005 are currently
       convertible into approximately 3,455,000 shares of common stock at a
       conversion price of Yen1,497.00 per share. The debentures are redeemable
       at the option of the Company between January 1, 2002 and December 31,
       2004 at premiums ranging from 3% to 1%, and at par thereafter, or,
       dependent on a particular circumstance, at par.

       The 1-3/10% Japanese yen convertible debentures due 2008 are currently
       convertible into approximately 6,645,000 shares of common stock at a
       conversion price of Yen1,497.00 per share. The debentures are redeemable
       at the option of the Company between January 1, 2002 and December 31,
       2007 at premiums ranging from 6% to 1%, and at par thereafter, or,
       dependent on a particular circumstance, at par.

                                                                    (Continued)

                                     70
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(8)    Trade Payables
       --------------
       Trade payables are summarized as follows:

                                             Millions of yen
                                         ---------------------
                                            2001         2000
                                         --------    ---------

            Notes                    Yen   86,432      139,804
            Accounts                      268,014      304,829
                                          -------      -------
                                     Yen  354,446      444,633
                                          =======      =======

(9)    Employee Retirement and Severance Benefits
       ------------------------------------------
       The Company and certain of its subsidiaries have contributory and
       noncontributory defined benefit plans covering substantially all
       employees after one year of service. Other subsidiaries sponsor unfunded
       retirement and severance plans. Benefits payable under the plans are
       based on employee earnings and years of service. The contributory plan
       includes a portion of the governmental welfare pension benefits which
       would otherwise be provided by the Japanese government in accordance
       with the Welfare Pension Insurance Law in Japan. Management considers
       that a portion of the contributory plans, which are administered by a
       board of trustees composed of management and labor representatives,
       represents a welfare pension plan carried on behalf of the Japanese
       government. These contributory and noncontributory plans are funded in
       conformity with the funding requirements of applicable Japanese
       governmental regulations.

       Net periodic benefit cost for Canon's employee retirement and severance
       defined benefit plans for the years ended December 31, 2001, 2000 and
       1999 consisted of the following components:

                                                         Millions of yen
                                                   ---------------------------
                                                    2001       2000       1999
                                                    ----       ----       ----
       Service cost - benefits earned
         during the year                    Yen    36,553     31,712     31,295
       Interest cost on projected
         benefit obligation                        20,341     16,512     15,599
       Expected return on plan assets             (13,636)    (9,834)   (10,393)
       Net amortization                             8,755      5,016      6,566
                                                  -------    -------    -------

                                            Yen    52,013     43,406     43,067
                                                   ======     ======     ======

                                                                    (Continued)

                                     71
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       Reconciliations of beginning and ending balances of the benefit
       obligations and the fair value of the plan assets are as follows:

<TABLE>
                                                                                      Millions of yen
                                                                                  ----------------------
                                                                                    2001          2000
                                                                                  --------      --------
<S>                                                                                <C>           <C>
       Change in benefit obligations:
            Benefit obligations at beginning of year                      Yen      614,187       518,078
            Service cost                                                            36,553        31,712
            Interest cost                                                           20,341        16,512
            Plan participants' contributions                                         3,517         3,512
            Amendments                                                             (56,664)            -
            Actuarial loss                                                          69,352        44,349
            Benefits paid                                                           (9,816)       (6,727)
            Other                                                                   40,621         6,751
                                                                                  --------      --------
            Benefit obligations at end of year                                     718,091       614,187
                                                                                  --------      --------

       Change in plan assets:
            Fair value of plan assets at beginning of year                         338,223       311,407
            Actual return on plan assets                                           (34,942)       (1,349)
            Employer contributions                                                  89,626        27,594
            Plan participants' contributions                                         3,517         3,512
            Benefits paid                                                           (9,816)       (6,727)
            Other                                                                   42,875         3,786
                                                                                  --------      --------
            Fair value of plan assets at end of year                               429,483       338,223
                                                                                  --------      --------

       Funded status                                                              (288,608)     (275,964)
       Unrecognized actuarial loss                                                 295,664       189,906
       Unrecognized prior service cost                                             (56,664)            -
       Unrecognized net transition obligation being
         recognized over 22 years                                                    5,333         5,680
                                                                                  --------      --------

       Net amount recognized                                              Yen      (44,275)      (80,378)
                                                                                  ========      ========

       Amounts recognized in the consolidated balance sheets consist of:
            Prepaid pension cost                                          Yen        1,394             -
            Accrued pension and severance cost                                    (237,537)     (194,445)
            Intangible assets                                                            -         5,680
            Accumulated other comprehensive income (loss), gross of tax            191,868       108,387
                                                                                  --------      --------

       Net amount recognized                                              Yen      (44,275)      (80,378)
                                                                                  ========      ========

       Weighted-average assumptions:
            Discount rate                                                              2.7%          3.0%
            Assumed rate of increase in future compensation levels                     3.3%          2.1%
            Expected long-term rate of return on plan assets                           3.5%          4.0%
</TABLE>

                                                                    (Continued)

                                     72
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       Employer contributions for the year ended December 31, 2001 include
       contribution of equity securities to an employee pension trust. The fair
       value of those securities at the time of contribution was Yen38,954
       million.

       The projected benefit obligation, accumulated benefit obligation, and
       fair value of plan assets for the pension plans with accumulated benefit
       obligations in excess of plan assets were Yen671,407 million, Yen608,706
       million and Yen381,514 million as of December 31, 2001.

       Directors and certain employees are not covered by the programs
       described above. Benefits paid to such persons and meritorious service
       payments are charged to income as paid, since amounts vary with
       circumstances, and it is therefore not practicable to compute the
       liability for future payments.

(10)   Income Taxes
       ------------
       Total income taxes were allocated as follows:

<TABLE>
                                                                    Millions of yen
                                                           ----------------------------------
                                                             2001         2000         1999
                                                           --------     --------     --------
<S>                                                       <C>         <C>        <C>
       Income before income taxes and
         minority interests                          Yen    115,154       87,197       83,939
       Stockholders' equity - accumulated other
         comprehensive income (loss):
            Foreign currency translation
              adjustments                                      (684)       1,387         (239)
            Net unrealized gains on securities              (11,692)     (25,457)      37,286
            Net losses on derivative
              instruments                                    (1,755)           -            -
            Minimum pension liability
              adjustments                                   (26,592)     (19,365)       7,712
                                                           --------     --------     --------

                                                     Yen     74,431       43,762      128,698
                                                           ========     ========     ========
</TABLE>

                                                                    (Continued)

                                     73
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       Domestic and foreign components of income before income taxes and
       minority interests ("income before income taxes"), and the current and
       deferred income tax expense (benefit) attributable to such income before
       income taxes are summarized as follows:

<TABLE>
                                                                    Millions of yen
                                                          -------------------------------------
                                                           Japanese      Foreign         Total
                                                          ---------     ---------     ---------
<S>                                                         <C>            <C>          <C>
       2001:
            Income before income taxes           Yen        230,456        51,110       281,566
                                                          =========     =========     =========

            Income taxes:
                Current                          Yen         95,664        17,318       112,982
                Deferred                                     (1,738)        3,910         2,172
                                                          ---------     ---------     ---------

                                                 Yen         93,926        21,228       115,154
                                                          =========     =========     =========

       2000:
            Income before income taxes           Yen        166,074        61,122       227,196
                                                          =========     =========     =========

            Income taxes:
                Current                          Yen         78,832        18,645        97,477
                Deferred                                    (14,584)        4,304       (10,280)
                                                          ---------     ---------     ---------

                                                 Yen         64,248        22,949        87,197
                                                          =========     =========     =========

       1999:
            Income before income taxes           Yen        100,044        56,028       156,072
                                                          =========     =========     =========

            Income taxes:
                Current                          Yen         64,197        25,714        89,911
                Deferred                                     (2,097)       (3,875)       (5,972)
                                                          ---------     ---------     ---------

                                                 Yen         62,100        21,839        83,939
                                                          =========     =========     =========
</TABLE>

                                                                    (Continued)

                                       74
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       The Company and its domestic subsidiaries are subject to a number of
       taxes based on income, which in the aggregate resulted in a normal tax
       rate of approximately 42.0 % in the years ended December 31, 2001 and
       2000, respectively, and 47.0% in the year ended December 31, 1999.

       Amendments to Japanese tax regulations were enacted into law on March
       24, 1999. As a result of these amendments, the normal income tax rate
       was reduced from approximately 47.0% to 42.0% effective from Canon's
       fiscal year beginning January 1, 2000. Current income taxes were
       calculated at the rate of 42.0% in effect for the years ended December
       31, 2001 and 2000, and 47% in effect for the year ended December 31,
       1999. Deferred income tax assets and liabilities as of December 31, 2001
       and 2000 were measured at a rate of principally 42.0%. The effects of
       the income tax rate reduction on deferred income tax balances as of
       December 31, 1999 are presented below.

       The significant components of deferred income tax expense (benefit)
       attributable to income before income taxes are as follows:

<TABLE>
                                                            Millions of yen
                                                    -------------------------------
                                                      2001        2000        1999
                                                    --------    --------    --------
<S>                                                    <C>       <C>          <C>
       Deferred tax expense (exclusive of the
         effects of other components listed
         below)                                 Yen    2,172     (10,280)    (16,181)
       Adjustments to deferred tax assets
         and liabilities for enacted
         changes in tax laws and rates                     -           -      10,209
                                                    --------    --------    --------

                                                Yen    2,172     (10,280)     (5,972)
                                                    ========    ========    ========
</TABLE>

       A reconciliation of the Japanese normal income tax rate and the
       effective income tax rate as a percentage of income before income taxes
       is as follows:

<TABLE>
                                                                        2001       2000       1999
                                                                       -----      -----      -----
<S>                                                                     <C>        <C>        <C>
       Japanese normal income tax rate                                  42.0%      42.0%      47.0%
       Increase (reduction) in income taxes resulting from:
            Expenses not deductible for tax purposes                     1.4        0.9        1.0
            Tax benefits not recognized on operating
              losses of subsidiaries                                     0.9        0.9        1.2
            Income of foreign subsidiaries taxed at lower
              than Japanese normal tax rate                             (2.0)      (1.9)      (6.1)
            Tax credit for increased research and development
              Expenses                                                  (2.1)      (1.3)      (0.5)
            Effect of enacted changes in tax laws and rates                -          -        6.5
            Other                                                        0.7       (2.2)       4.7
                                                                       -----      -----      -----

                    Effective income tax rate                           40.9%      38.4%      53.8%
                                                                       =====      =====      =====
</TABLE>

                                                                    (Continued)

                                     75
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       Net deferred income tax assets and liabilities are reflected on the
       accompanying consolidated balance sheets under the following captions:

                                                             Millions of yen
                                                          ---------------------
                                                            2001         2000
                                                          --------     --------
       Prepaid expenses and other current assets     Yen    82,951       81,789
       Other assets                                        160,821      110,095
       Other current liabilities                            (1,517)        (961)
       Other noncurrent liabilities                        (10,234)     (16,704)
                                                          --------     --------

                                                     Yen   232,021      174,219
                                                          ========     ========

       The tax effects of temporary differences that give rise to significant
       portions of the deferred tax assets and deferred tax liabilities at
       December 31, 2001 and 2000 are presented below:

                                                              Millions of yen
                                                           --------------------
                                                             2001        2000
                                                           --------    --------
       Deferred tax assets:
            Inventories - intercompany profits
              and write-downs                           Yen  49,754      52,279
            Accrued business tax                              6,146       4,587
            Accrued pension and severance cost               39,941      32,421
            Minimum pension liability adjustments            87,524      45,520
            Property, plant and equipment -
              intercompany profits                            3,715       3,840
            Research and development - costs
              capitalized for tax purposes                   23,067      24,527
            Depreciation                                     13,828      12,853
            Other                                            61,636      46,494
                                                           --------    --------
                Total gross deferred tax assets             285,611     222,521
                Less valuation allowance                     12,875       6,367
                                                           --------    --------
                Net deferred tax assets                     272,736     216,154
                                                           --------    --------

       Deferred tax liabilities:
            Land including deferred gain on sale             (3,028)     (3,305)
            Unamortized debt issuance cost                     (205)       (276)
            Accounts receivable - allowance
              for doubtful accounts                            (990)     (1,601)
            Undistributed earnings of foreign
              subsidiaries and affiliated companies          (5,472)     (5,899)
            Net unrealized gains on securities               (2,247)    (13,939)
            Other                                           (28,773)    (16,915)
                                                           --------    --------
                Total gross deferred tax liabilities        (40,715)    (41,935)
                                                           --------    --------

                Net deferred tax assets                 Yen 232,021     174,219
                                                           ========    ========

                                                                    (Continued)

                                       76
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       The valuation allowance for deferred tax assets as of January 1, 2000
       was Yen4,191 million. The net change in the total valuation allowance for
       the years ended December 31, 2001 and 2000 was an increase of Yen6,508
       million and Yen2,176 million, respectively.

       Based upon the level of historical taxable income and projections for
       future taxable income over the periods which the net deductible
       temporary differences are expected to reverse, management believes it is
       more likely than not Canon will realize the benefits of these deferred
       tax assets, net of the existing valuation allowances at December 31,
       2001.

       At December 31, 2001, Canon had net operating losses carried forward for
       income tax purposes of approximately Yen23,357 million which were
       available to reduce future income taxes, if any. Approximately Yen22,490
       million of the operating losses expire through 2011 while the remainder
       have an indefinite carryforward period.

       Income taxes have not been accrued on undistributed income of domestic
       subsidiaries and affiliated companies as distributions of such income
       are not taxable under present circumstances.

       Canon has not recognized deferred tax liabilities of approximately
       Yen35,404 million for the portion of undistributed earnings of foreign
       subsidiaries that arose in the year ended December 31, 2001 and prior
       years because Canon currently does not expect those unremitted earnings
       to reverse and become taxable to the Company in the foreseeable future.
       Deferred tax liabilities will be recognized when Canon expects that it
       will recover those undistributed earnings in a taxable manner, such as
       through receipt of dividends or sale of the investments. As of December
       31, 2001, such undistributed earnings of these subsidiaries were
       approximately Yen342,414 million.

(11)   Common Stock
       ------------
       During the years ended December 31, 2001, 2000 and 1999, the Company
       issued 655,309 shares, 4,071,325 shares and 1,249,828 shares of common
       stock, respectively. The issuance of 3,176,373 shares during the year
       ended December 31, 2000 was in connection with the acquisition of the
       outstanding minority ownership interest of Canon Chemicals Inc. ("Canon
       Chemicals"). The acquisition of the minority interest was consummated on
       November 7, 2000, whereby Canon Chemicals became a wholly-owned
       subsidiary of the Company. The remaining issuance of the shares of the
       Company was in connection with conversion of convertible debt.
       Conversion into common stock of convertible debt issued subsequent to
       October 1, 1982 was accounted for by crediting one-half of the
       conversion price and exercise price to each of the common stock account
       and the additional paid-in capital account.


                                                                    (Continued)

                                       77
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(12)   Legal Reserve and Cash Dividends
       --------------------------------
       The Japanese Commercial Code provided that an amount equal to at least
       10% of appropriations paid in cash be appropriated as a legal reserve
       until such reserve equals 25% of common stock. The Japanese Commercial
       Code, amended effective on October 1, 2001, provides that an amount
       equal to at least 10% of appropriations paid in cash be appropriated as
       a legal reserve until an aggregated amount of additional paid-in capital
       and the legal reserve equals 25% of common stock. Certain foreign
       subsidiaries are also required to appropriate their earnings to legal
       reserves under the laws of the respective countries. Canon's equity in
       retained earnings or deficit of affiliated companies owned 20% to 50%
       accounted for on the equity basis aggregating positive Yen10,340 million
       at December 31, 2001 is included in retained earnings.

       Cash dividends and appropriations to the legal reserve charged to
       retained earnings during the years ended December 31, 2001, 2000 and
       1999 represent dividends paid out during those years and the related
       appropriations to the legal reserve. Provision has not been made in the
       accompanying consolidated financial statements for the dividend for the
       second half year of Yen14.50 per share, aggregating Yen12,705 million,
       subsequently proposed by the Board of Directors in respect of the year
       ended December 31, 2001.

       Cash dividends per common share are computed based on dividends declared
       with respect to earnings for the periods.

       The amount available for dividends under the Japanese Commercial Code is
       based on the amount recorded in the Company's nonconsolidated books of
       account in accordance with financial accounting standards of Japan. The
       adjustments included in the accompanying consolidated financial
       statements to have them conform with accounting principles generally
       accepted in the United States of America, but not recorded in the books
       of account, have no effect on the determination of retained earnings
       available for dividends under the Japanese Commercial Code. The amount
       available for dividends in the Company's nonconsolidated books of
       account under the Japanese Commercial Code amounted to Yen631,646 million
       at December 31, 2001.

(13)   Noncash Financing Activities
       ----------------------------
       In the years ended December 31, 2001, 2000 and 1999, common stock and
       additional paid-in capital arising from conversion of convertible debt
       amounted to Yen981 million, Yen1,335 million and Yen1,871 million,
       respectively.

       As a result of the acquisition of the outstanding minority ownership
       interest of Canon Chemicals Inc. during the year ended December 31,
       2000, goodwill classified as other assets, common stock and additional
       paid-in capital increased by Yen4,116 million, Yen159 million and
       Yen14,430 million, respectively, and also minority interests decreased
       by Yen10,473 million.


                                                                    (Continued)

                                       78
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(14)   Other Comprehensive Income (Loss)
       ---------------------------------
       Change in accumulated other comprehensive income (loss) is as follows:

<TABLE>
                                                                            Millions of yen
                                                                   ----------------------------------
                                                                     2001         2000         1999
                                                                   --------     --------     --------
<S>                                                                <C>          <C>           <C>
       Foreign currency translation adjustments:
            Balance at beginning of year                     Yen   (104,149)    (127,148)     (66,372)
            Adjustments for the year                                 51,489       22,999      (60,776)
                                                                   --------     --------     --------
            Balance at end of year                                  (52,660)    (104,149)    (127,148)
                                                                   --------     --------     --------
       Net unrealized gains on securities:
            Balance at beginning of year                             14,167       48,699        7,442
            Adjustments for the year                                (13,603)     (34,532)      41,257
                                                                   --------     --------     --------
            Balance at end of year                                      564       14,167       48,699
                                                                   --------     --------     --------
       Net losses on derivative instruments:
            Balance at beginning of year                                  -            -            -
            Adjustments for the year                                 (2,423)           -            -
                                                                   --------     --------     --------
            Balance at end of year                                   (2,423)           -            -
                                                                   --------     --------     --------
       Minimum pension liability adjustments:
            Balance at beginning of year                            (56,600)     (29,858)     (38,555)
            Adjustments for the year                                (24,049)     (26,742)       8,697
                                                                   --------     --------     --------
            Balance at end of year                                  (80,649)     (56,600)     (29,858)
                                                                   --------     --------     --------
       Total accumulated other comprehensive income (loss):
            Balance at beginning of year                           (146,582)    (108,307)     (97,485)
            Adjustments for the year                                 11,414      (38,275)     (10,822)
                                                                   --------     --------     --------
            Balance at end of year                           Yen   (135,168)    (146,582)    (108,307)
                                                                   ========     ========     ========
</TABLE>

                                                                    (Continued)

                                       79
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       Tax effects allocated to each component of other comprehensive income
       (loss) and reclassification adjustments are as follows:

<TABLE>
                                                                           Millions of yen
                                                                  ----------------------------------
                                                                                 Tax
                                                                  Before-tax  (expense)   Net-of-tax
                                                                    amount    or benefit    amount
                                                                  ----------  ----------  ----------
<S>                                                                <C>          <C>         <C>
       2001:
          Foreign currency translation adjustments:
             Amount arising during the year                   Yen   50,823         684      51,507
             Reclassification adjustments for gains and
               losses realized in net income                           (18)          -         (18)
                                                                   -------     -------     -------
             Net change during the year                             50,805         684      51,489
          Net unrealized gains on securities:
             Amount arising during the year                         (8,434)      4,535      (3,899)
             Reclassification adjustments for gains and
               losses realized in net income                       (16,861)      7,157      (9,704)
                                                                   -------     -------     -------
             Net change during the year                            (25,295)     11,692     (13,603)
          Net losses on derivative instruments:
             Amount arising during the year                        (11,146)      4,681      (6,465)
             Reclassification adjustments for gains and
               losses realized in net income                         6,968      (2,926)      4,042
                                                                   -------     -------     -------
             Net change during the year                             (4,178)      1,755      (2,423)
          Minimum pension liability adjustments                    (50,641)     26,592     (24,049)
                                                                   -------     -------     -------

          Other comprehensive income (loss)                   Yen  (29,309)     40,723      11,414
                                                                   =======     =======     =======

       2000:
          Foreign currency translation adjustments:
             Amount arising during the year                   Yen   25,581      (1,392)     24,189
             Reclassification adjustments for gains and
               losses realized in net income                        (1,195)          5      (1,190)
                                                                   -------     -------     -------
             Net change during the year                             24,386      (1,387)     22,999
          Net unrealized gains on securities:
             Amount arising during the year                        (57,484)     24,409     (33,075)
             Reclassification adjustments for gains and
               losses realized in net income                        (2,505)      1,048      (1,457)
                                                                   -------     -------     -------
             Net change during the year                            (59,989)     25,457     (34,532)
          Minimum pension liability adjustments                    (46,107)     19,365     (26,742)
                                                                   -------     -------     -------

          Other comprehensive income (loss)                   Yen  (81,710)     43,435     (38,275)
                                                                   =======     =======     =======
</TABLE>

                                                                    (Continued)

                                       80
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

<TABLE>
                                                                          Millions of yen
                                                                 ----------------------------------
                                                                                Tax
                                                                 Before-tax  (expense)   Net-of-tax
                                                                   amount    or benefit    amount
                                                                 ----------  ----------  ----------
<S>                                                                <C>        <C>         <C>
       1999:
          Foreign currency translation adjustments:
             Amount arising during the year                  Yen  (61,023)        239     (60,784)
             Reclassification adjustments for gains and
               losses realized in net income                            8           -           8
                                                                  -------     -------     -------
             Net change during the year                           (61,015)        239     (60,776)
          Net unrealized gains on securities:
             Amount arising during the year                        79,789     (37,914)     41,875
             Reclassification adjustments for gains and
               losses realized in net income                       (1,246)        628        (618)
                                                                  -------     -------     -------
             Net change during the year                            78,543     (37,286)     41,257
          Minimum pension liability adjustments                    16,409      (7,712)      8,697
                                                                  -------     -------     -------

          Other comprehensive income (loss)                  Yen   33,937     (44,759)    (10,822)
                                                                  =======     =======     =======
</TABLE>

                                                                    (Continued)

                                       81
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(15)   Earnings per Share
       ------------------
       A reconciliation of the numerators and denominators of basic and diluted
       earnings per share for "Income before cumulative effect of change in
       accounting principle" computations is as follows:

<TABLE>
                                                                    Millions of yen
                                                       -----------------------------------------
                                                           2001           2000           1999
                                                       -----------    -----------    -----------
<S>                                                        <C>            <C>             <C>
       Income before cumulative effect of
         change in accounting principle           Yen      163,869        134,088         70,234
       Effect of dilutive securities:
            1% Japanese yen convertible
              debentures, due 2002                              40             45             45
            1-2/10% Japanese yen convertible
              debentures, due 2005                              48             50             50
            1-3/10% Japanese yen convertible
              debentures, due 2008                              91             91             89
                                                       -----------    -----------    -----------
       Diluted income before cumulative
         effect of change in accounting
         principle                                Yen      164,048        134,274         70,418
                                                       ===========    ===========    ===========

<CAPTION>
                                                                    Number of shares
                                                       -----------------------------------------
<S>                                                    <C>            <C>            <C>
       Average common shares outstanding               875,960,380    872,606,481    870,699,219
       Effect of dilutive securities:
            1% Japanese yen convertible
              debentures, due 2002                       2,859,462      3,322,850      3,649,401
            1-2/10% Japanese yen convertible
              debentures, due 2005                       3,461,229      3,629,772      4,029,084
            1-3/10% Japanese yen convertible
              debentures, due 2008                       6,646,369      6,687,888      7,369,714
            Other                                                -          3,937         15,994
                                                       -----------    -----------    -----------
       Diluted common shares outstanding               888,927,440    886,250,928    885,763,412
                                                       ===========    ===========    ===========

<CAPTION>
                                                                           Yen
                                                       -----------------------------------------
<S>                                                         <C>            <C>             <C>
       Earnings per share before cumulative
         effect of change in accounting
         principle
            Basic                                 Yen       187.07         153.66          80.66
            Diluted                                         184.55         151.51          79.50
</TABLE>

                                                                    (Continued)

                                       82
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       The computation of diluted net income per share for the year ended
       December 31, 2001 uses the same average common shares outstanding used
       for the computation of diluted net income per share before cumulative
       effect of accounting change, and reflects the effect of dilutive
       securities in diluted net income.

(16)   Foreign Exchange Risk Management and Interest Rate Risk Management
       ------------------------------------------------------------------
       (prior to SFAS 133 and SFAS 138)
       --------------------------------
       Canon operates internationally which exposes Canon to the risk of
       changes in foreign exchange rates and interest rates. Derivative
       financial instruments are comprised principally of foreign exchange
       contracts and interest rate swaps utilized by the Company and certain of
       its subsidiaries to reduce these risks. Canon does not hold or issue
       financial instruments for trading purposes.

       The contract amounts of derivative financial instruments summarized in
       the following paragraphs do not represent amounts exchanged by the
       parties and thus are not a measure of the exposure of Canon through its
       use of derivative financial instruments. Canon is exposed to the risk of
       credit-related losses in the event of nonperformance by counterparties
       to foreign exchange contracts and interest rate swaps, but it does not
       expect any counterparties to fail given their high credit ratings.

       Contract amounts of foreign exchange contracts and interest rate swaps
       at December 31, 2000 are set forth below:

                                                             Millions of yen
                                                             ---------------
       Forwards and swaps:
            To sell foreign currencies                       Yen   361,279
            To buy foreign currencies                                9,600
            Receive-fixed interest rate swaps                       40,000
            Pay-fixed interest rate swaps                           73,538

       The Company and certain of its subsidiaries enter into foreign exchange
       contracts and currency swaps to hedge the risk of fluctuation in foreign
       currency exchange rates associated with certain trade receivables,
       long-term debt and anticipated sales transactions (including firm
       commitments) denominated in foreign currencies. The terms of these
       foreign exchange contracts rarely extend beyond three months except for
       those related to long-term debt denominated in foreign currencies which
       have the same terms as underlying debts. Interest rate swap contracts
       are generally used by the Company and certain of its subsidiaries to
       offset changes in the rates paid on long-term debt. Interest rate swap
       contracts outstanding at December 31, 2000 mature between 2001 and 2004.


                                                                    (Continued)

                                       83
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(17)   Derivatives and Hedging Activities
       ----------------------------------
       Risk management policy
       Canon operates internationally which exposes Canon to the risk of
       changes in foreign exchange rates and interest rates. Derivative
       financial instruments are comprised principally of foreign exchange
       contracts and interest rate swaps utilized by the Company and certain of
       its subsidiaries to reduce these risks. Canon assesses foreign currency
       exchange rate risk and interest rate risk by continually monitoring
       changes in these exposures and by evaluating hedging opportunities.
       Canon does not hold or issue derivative financial instruments for
       trading purposes. Canon is also exposed to credit-related losses in the
       event of non-performance by counterparties to derivative financial
       instruments, but it is not expected that any counterparties will fail to
       meet their obligations, because most of the counterparties are
       internationally recognized financial institutions and contracts are
       diversified into a number of major financial institutions.

       Foreign currency exchange rate risk management
       The major manufacturing bases of Canon are located in Japan and Asia.
       The sales generated from overseas are mainly denominated in U.S. dollar
       or Euro. Therefore, Canon's international operations expose Canon to the
       risk of changes in foreign currency. To manage foreign exchange exposure
       from sales in foreign currencies such as U.S. dollars and Euro, Canon
       enters into foreign exchange contracts. Canon uses foreign exchange
       contracts to manage certain foreign currency exchange exposures
       principally from the exchange of U.S. dollar and Euro into Japanese yen.
       These contracts are primarily used to hedge the foreign currency
       exposure of forecasted intercompany sales which are denominated in
       foreign currencies. In accordance with Canon's policy, a specific
       portion of foreign currency exposure resulting from forecasted
       intercompany sales are hedged using foreign exchange contracts which
       principally mature within three months.

       Interest rate risk management
       Canon's exposure to the market risk of changes in interest rates relates
       primarily to its debt obligations. The fixed-rate debt obligations
       expose Canon to variability in their fair values due to change in
       interest rates. To manage the variability in the fair values caused by
       interest rate changes, Canon enters into interest rate swaps, when it is
       determined to be appropriate based on market conditions. The interest
       rate swaps change the fixed-rate debt obligations to variable-rate debt
       obligations by entering into receive-fixed, pay-variable interest rate
       swaps. The hedging relationship between the interest rate swaps and its
       hedged debt obligations is highly effective in achieving offsetting
       changes in fair values resulting from interest rate risk.

       Fair value hedge
       Derivative financial instruments designated as fair value hedges
       principally relate to interest rate swaps associated with fixed rate
       debt obligations. Changes in fair values of the hedged debt obligations
       and derivative instruments designated as fair value hedges of these debt
       obligations are recognized in other income (deductions). There is no
       hedging ineffectiveness or net gains or losses excluded from the
       assessment of hedge effectiveness for the year ended December 31, 2001
       as the critical terms of the interest rate swaps match the terms of the
       hedged debt obligations.


                                                                    (Continued)

                                       84
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       Cash flow hedge
       Changes in the fair value of foreign exchange contracts designated and
       qualifying as cash flow hedges of forecasted intercompany sales are
       reported in accumulated other comprehensive income (loss). These amounts
       are subsequently reclassified into earnings through other income
       (deductions) in the same period as the hedged items affect earnings. All
       the accumulated other comprehensive income (loss) at end of year are
       substantially expected to be recognized in earnings over the next twelve
       months. Canon excludes the time value component of the hedging
       instruments from the assessment of hedge effectiveness.

       The effective portions of changes in the fair value of foreign exchange
       contracts designated as cash flow hedges and reported in accumulated
       other comprehensive income (loss), net of the related tax effect, are
       losses of Yen6,465 million for the year ended December 31, 2001. The
       amounts which were reclassified out of accumulated other comprehensive
       income (loss) into other income (deductions), net of the related tax
       effect, are net losses of Yen4,042 million for the year ended December
       31, 2001. The amounts of the hedging ineffectiveness is not material for
       the year ended December 31, 2001. The sum of the amount of net gains or
       losses excluded from the assessment of hedge effectiveness which are
       also recorded in other income (deductions), net of the related tax
       effect, are net gains of Yen1,907 million for the year ended December
       31, 2001.

       Canon has entered into certain interest rate swap agreements which do
       not meet the hedging criteria of SFAS 133. Canon records these interest
       rate swap agreements on the balance sheet at fair value. The changes in
       fair values are recorded in earnings immediately. The notional amounts
       of those interest rate swap agreements were Yen62,788 million at December
       31, 2001. Canon recognized net losses related to those interest rate
       swaps in the amount of Yen2,521 million for the year ended December 31,
       2001 and classified such amount in other income (deductions).

       Contract amounts of foreign exchange contracts and interest rate swaps
       at December 31, 2001 are set forth below:

<TABLE>
                                                                    Millions of yen
                                                                    ---------------
                                                    U.S. dollars     Euro      Other      Total
                                                    ------------     ----      -----      -----
<S>                                                     <C>        <C>         <C>       <C>
            To sell foreign currencies             Yen  117,810    115,475     17,603    250,888
            To buy foreign currencies                    11,554      1,593        596     13,743
            Receive-fixed interest rate swaps                 -          -     21,548     21,548
            Pay-fixed interest rate swaps                62,788          -          -     62,788
</TABLE>


                                                                    (Continued)

                                       85
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(18)   Commitments and Contingent Liabilities
       --------------------------------------
       At December 31, 2001, commitments outstanding for the purchase of
       property, plant and equipment approximated Yen51,446 million. Contingent
       liabilities for guarantees of bank loans to employees and to affiliated
       and other companies amounted to approximately Yen66,023 million.

       Canon occupies sales offices and other facilities under lease
       arrangements accounted for as operating leases. Deposits made under such
       arrangements aggregated Yen18,700 million and Yen19,195 million at
       December 31, 2001 and 2000, respectively, and are reflected in
       noncurrent receivables and restricted funds on the accompanying
       consolidated balance sheets.

       Future minimum lease payments required under noncancellable operating
       leases that have initial or remaining lease terms in excess of one year
       as of December 31, 2001 are as follows:

                                                                Millions
       Year ending December 31:                                  of yen
                                                               ---------
            2002                                          Yen     13,731
            2003                                                  10,799
            2004                                                   6,708
            2005                                                   4,916
            2006                                                   3,863
            Later years                                           10,564
                                                               ---------

                Total future minimum lease payments       Yen     50,581
                                                               =========

(19)   Disclosures about the Fair Value of Financial Instruments
       ---------------------------------------------------------
       Cash and cash equivalents, Trade receivables, Short-term loans, Trade
       payables, Accrued expenses
       The carrying amount approximates fair value because of the short
       maturity of these instruments.

       Marketable securities and Investments
       The fair values of Canon's marketable securities and investments are
       based on quoted market prices.

       Noncurrent receivables and restricted funds
       The fair values of Canon's noncurrent receivables and restricted funds
       are based on the present value of future cash flows through estimated
       maturity, discounted using estimated market discount rates. Their
       carrying amounts at December 31, 2001 and 2000 totaled Yen21,125 million
       and Yen27,626 million, respectively, which approximate fair values.


                                                                    (Continued)

                                       86
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       Long-term debt
       The fair values of Canon's long-term debt instruments are based on the
       quoted price in the most active market or the present value of future
       cash flows associated with each instrument discounted using Canon's
       current borrowing rate for similar debt instruments of comparable
       maturity.

       Derivative financial instruments
       The fair values of derivative financial instruments, consisting
       principally of foreign exchange contracts and interest rate swaps, all
       of which are used for purposes other than trading, are estimated by
       obtaining quotes from brokers.

       The estimated fair values of Canon's financial instruments at December
       31, 2001 and 2000 are summarized as follows:

<TABLE>
                                                            Millions of yen
                                                     ------------------------------
                                                     2001                      2000
                                                     ----                      ----
                                             Carrying    Estimated     Carrying    Estimated
                                              Amount     Fair Value     Amount     Fair Value
                                              ------     ----------     ------     ----------
<S>                                          <C>          <C>          <C>          <C>
       Nonderivatives:
          Assets:
             Marketable securities
               and Investments          Yen    38,061       38,061       88,197       88,197
          Liabilities:
             Long-term debt,
               including current
               installments                  (149,274)    (189,577)    (181,420)    (225,188)

       Derivatives relating to:
          Trade receivables and
            anticipated sales
            transactions:
                Assets                            493          493          293          293
                Liabilities                   (13,593)     (13,593)     (22,486)     (20,220)
          Long-term debt,
            including current
            installments:
                Interest rate swaps:
                    Assets                        575          575          349        1,384
                    Liabilities                (1,463)      (1,463)         (49)        (584)
</TABLE>

       Limitations
       Fair value estimates are made at a specific point in time, based on
       relevant market information and information about the financial
       instruments. These estimates are subjective in nature and involve
       uncertainties and matters of significant judgment and therefore cannot
       be determined with precision. Changes in assumptions could significantly
       affect the estimates.


                                                                    (Continued)

                                       87
<PAGE>


                          CANON INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(20)   Supplementary Expense Information
       ---------------------------------

                                                  Millions of yen
                                             --------------------------
                                             2001       2000       1999
                                             ----       ----       ----

       Research and development       Yen  218,616    194,552    177,922
       Depreciation of property,
         plant and equipment               147,286    144,043    155,682
       Rent                                 47,558     42,963     48,236
       Advertising                          66,837     67,840     67,544
       Exchange losses                      14,801     20,195      3,387


                                                                    (Continued)

                                       88
<PAGE>


<TABLE>

                                                                                                                Schedule II

                                                CANON INC. AND SUBSIDIARIES

                                              Valuation and Qualifying Accounts

                                        Years ended December 31, 2001, 2000 and 1999

                                                                                                  Add
                                             Balance at          Add           Deduct           (deduct)         Balance
                                            beginning of      charge to       bad debts       translation       at end of
                                               period          income        written off      adjustments        period
                                            ------------      ---------      -----------      -----------      -----------
                                                                          (Millions of yen)
<S>                                        <C>               <C>            <C>              <C>               <C>
Year ended December 31, 2001:
 Allowance for doubtful Receivables....      Yen 11,617       Yen 4,284       Yen 5,689        Yen    879       Yen 11,091
                                             ==========       =========       =========        ==========       ==========
Year ended December 31, 2000:
 Allowance for doubtful Receivables....      Yen 10,555       Yen 4,624       Yen 3,004        Yen    558       Yen 11,617
                                             ==========       =========       =========        ==========       ==========
Year ended December 31, 1999:
 Allowance for doubtful Receivables....      Yen 12,145       Yen 3,805       Yen 3,685        Yen (1,710)      Yen 10,555
                                             ==========       =========       =========        ==========       ==========
</TABLE>


                                      89


<PAGE>



Item 18. Financial Statements

     Not applicable.

Item 19. Financial Statements and Exhibits

     (a) Following Consolidated financial statements and Schedule are listed in
        Item 17. "Financial Statements."

                                                                     Page number
                                                                     -----------

Consolidated financial statements of Canon Inc. and Subsidiaries:

      Independent Auditors' Report............................................50

      Consolidated Balance Sheets as of December 31, 2001 and 2000............51

      Consolidated Statements of Income for the years ended
        December 31, 2001, 2000 and 1999......................................52

      Consolidated Statements of Stockholders' Equity for
        the years ended December 31, 2001, 2000 and 1999......................53

      Consolidated Statements of Cash Flows for the years
        ended December 31, 2001, 2000 and 1999................................54

      Notes to Consolidated Financial Statements..............................56

      Schedule:

      Independent Auditors' Report on Schedule................................50

      Schedule II  Valuation and Qualifying Accounts for
        the years ended December 31, 2001, 2000 and 1999......................89

     (b) Following Exhibits are listed in Item 19.
         "Financial Statements and Exhibits."

Exhibit:

      Regulation for Handling of Shares of Canon Inc. (Translation)...........93

      Articles of Incorporation of Canon Inc. (Translation)...................99

                                      90


<PAGE>





                                  SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, as amended, the registrant certifies that it meets all of the
requirements for filing on Form 20-F and has duly caused this Annual Report to
be signed on its behalf by the undersigned, thereunto duly authorized.




                                                 CANON INC.
                                                 (Registrant)


                                                 By: Toshizo Tanaka
                                                    ----------------------------
                                                     (Senior Managing Director)


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


Date  June 17, 2002


                                      91


<PAGE>


                                 EXHIBIT INDEX


                                                                  Subsequently
Exhibit number                 Title                              Numbered Page
--------------                 -----                              -------------

Exhibit 1.1      Regulation for Handling of Shares of
                 Canon Inc. (Translation) ..........................    93

Exhibit 1.2      Articles of Incorporation of Canon Inc.
                 (Translation) .....................................    99







                                      92