##### Table of Contents



o
    
    REGISTRATION STATEMENT PURSUANT TOSECTION 12(b)OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934ORþ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2008ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from  toORo
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Date of event requiring this shell company report
 
  
     JAPAN
 
  
   Title of each class
    
    Name of each exchange on which registered(1) Common Stock (the shares)
    
    New York Stock Exchange*(2) American Depositary Shares (ADSs), each of which represents one share
    
    New York Stock Exchange
  
 
 
   
  þ o
  o þ
  þ o
  þ o o
  þ
 o
 o
  o o
  o þ




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##### Table of Contents



Page numberCERTAIN DEFINED TERMS, CONVENTIONS AND PRESENTATION OF FINANCIAL INFORMATION
    
    
    1FORWARD-LOOKING INFORMATION
    
    
    1PART IItem 1.
    
    Identity of Directors, Senior Management and Advisers
    
    
    2Item 2.
    
    Offer Statistics and Expected Timetable
    
    
    2Item 3.
    
    Key Information
    
    
    2A.
    
    Selected financial data
    
    
    2B.
    
    Capitalization and indebtedness
    
    
    3C.
    
    Reasons for the offer and use of proceeds
    
    
    3D.
    
    Risk factors
    
    
    3Item 4.
    
    Information on the Company
    
    
    9A.
    
    History and development of the Company
    
    
    9B.
    
    Business overview
    
    
    9Products
    
    
    10Marketing and distribution
    
    
    12Service
    
    
    12Seasonality
    
    
    12Sources of supply
    
    
    13Net sales by product group and geographic area
    
    
    13Competition
    
    
    14Patents and licenses
    
    
    14Environmental regulations
    
    
    15C.
    
    Organizational structure
    
    
    17D.
    
    Property, plants and equipment
    
    
    18Item 4A.
    
    Unresolved Staff Comments
    
    
    20Item 5.
    
    Operating and Financial Review and Prospects
    
    
    21A.
    
    Operating results
    
    
    21Overview
    
    
    21Critical accounting policies and estimates
    
    
    22Consolidated results of operations
    
    
    24Fiscal 2008 compared with fiscal 2007
    
    
    24Fiscal 2007 compared with fiscal 2006
    
    
    26Foreign operations and foreign currency transactions
    
    
    31B.
    
    Liquidity and capital resources
    
    
    31C.
    
    Research and development, patents and licenses
    
    
    32D.
    
    Trend information
    
    
    33E.
    
    Off-balance sheet arrangements
    
    
    34F.
    
    Contractual obligations
    
    
    35Item 6.
    
    Directors, Senior Management and Employees
    
    
    36A.
    
    Directors and senior management
    
    
    36B.
    
    Compensation
    
    
    40C.
    
    Board practices
    
    
    43D.
    
    Employees
    
    
    44E.
    
    Share ownership
    
    
    45Item 7.
    
    Major Shareholders and Related Party Transactions
    
    
    46A.
    
    Major shareholders
    
    
    46B.
    
    Related party transactions
    
    
    46C.
    
    Interests of experts and counsel
    
    
    46
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Page numberItem 8.
    
    
    
    
    
    Financial Information
    
    
    47A.
    
    Consolidated financial statements and other financial information
    
    
    47Consolidated financial statements
    
    
    47Legal proceedings
    
    
    47Dividend policy
    
    
    48B.
    
    Significant changes
    
    
    48Item 9.
    
    
    
    
    
    The Offer and Listing
    
    
    49A.
    
    Offer and listing details
    
    
    49Trading in domestic markets
    
    
    49Trading in foreign markets
    
    
    50B.
    
    Plan of distribution
    
    
    50C.
    
    Markets
    
    
    50D.
    
    Selling shareholders
    
    
    50E.
    
    Dilution
    
    
    50F.
    
    Expenses of the issue
    
    
    50Item 10.
    
    
    
    
    
    Additional Information
    
    
    51A.
    
    Share capital
    
    
    51B.
    
    Memorandum and articles of association
    
    
    51C.
    
    Material contracts
    
    
    55D.
    
    Exchange controls
    
    
    55E.
    
    Taxation
    
    
    56F.
    
    Dividends and paying agents
    
    
    57G.
    
    Statement by experts
    
    
    57H.
    
    Documents on display
    
    
    58I.
    
    Subsidiary information
    
    
    58Item 11.
    
    
    
    
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    58Market risk exposures
    
    
    58Equity price risk
    
    
    58Foreign currency exchange rate and interest rate risk
    
    
    59Item 12.
    
    
    
    
    
    Description of Securities Other than Equity Securities
    
    
    59PART IIItem 13.
    
    
    
    
    
    Defaults, Dividend Arrearages and Delinquencies
    
    
    60Item 14.
    
    
    
    
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    60Item 15.
    
    
    
    
    
    Controls and Procedures
    
    
    60Item 16A.
    
    
    
    
    
    Audit Committee Financial Expert
    
    
    61Item 16B.
    
    
    
    
    
    Code of Ethics
    
    
    61Item 16C.
    
    
    
    
    
    Principal Accountant Fees and Services
    
    
    61Item 16D.
    
    
    
    
    
    Exemptions from the Listing Standards for Audit Committees
    
    
    62Item 16E.
    
    
    
    
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    62Item 16F.
    
    
    
    
    
    Change in Registrants Certifying Accountant
    
    
    62Item 16G.
    
    
    
    
    
    Corporate Governance
    
    
    63PART IIIItem 17.
    
    
    
    
    
    Financial Statements
    
    
    64Reports of Independent Registered Public Accounting Firm
    
    
    65Consolidated Balance Sheets
    
    
    67Consolidated Statements of Income
    
    
    68Consolidated Statements of Stockholders Equity
    
    
    69Consolidated Statements of Cash Flows
    
    
    70Notes to Consolidated Financial Statements
    
    
    71Schedule
II - Valuation and Qualifying Accounts
    
    
    98Item 18.
    
    
    
    
    
    Financial Statements
    
    
    99Item 19.
    
    
    
    
    
    Exhibits
    
    
    99SIGNATURES
    
    
    
    
    
    
    
    
    
    
    100EXHIBIT INDEX
    
    
    
    
    
    
    
    
    
    
    101
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1




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PART I
 
 Item 1. Identity of Directors, Senior Management and Advisers
  
 Item 2. Offer Statistics and Expected Timetable
  
 Item 3. Key Information
 
 A. Selected financial data
  Selected
financial data *1:
    
    2008 *4
    
    2007 *4
    
    2006
    
    2005
    
    2004(Millions of yen, except average number of shares and per share data)Net sales
    
    ¥
    4,094,161
    
    
    ¥
    4,481,346
    
    
    ¥
    4,156,759
    
    
    ¥
    3,754,191
    
    
    ¥
    3,467,853Operating profit
    
    
    496,074
    
    
    
    756,673
    
    
    
    707,033
    
    
    
    583,043
    
    
    
    543,793Net income
    
    
    309,148
    
    
    
    488,332
    
    
    
    455,325
    
    
    
    384,096
    
    
    
    343,344Advertising expenses
    
    
    112,810
    
    
    
    132,429
    
    
    
    116,809
    
    
    
    106,250
    
    
    
    111,770Research and development expenses
    
    
    374,025
    
    
    
    368,261
    
    
    
    308,307
    
    
    
    286,476
    
    
    
    275,300Depreciation of property, plant and equipment
    
    
    304,622
    
    
    
    309,815
    
    
    
    235,804
    
    
    
    205,727
    
    
    
    174,397Increase in property, plant and equipment
    
    
    361,988
    
    
    
    428,549
    
    
    
    379,657
    
    
    
    383,784
    
    
    
    318,730Long-term debt, excluding current installments
    
    
    8,423
    
    
    
    8,680
    
    
    
    15,789
    
    
    
    27,082
    
    
    
    28,651Common stock
    
    
    174,762
    
    
    
    174,698
    
    
    
    174,603
    
    
    
    174,438
    
    
    
    173,864Stockholders equity
    
    
    2,659,792
    
    
    
    2,922,336
    
    
    
    2,986,606
    
    
    
    2,604,682
    
    
    
    2,209,896Total assets
    
    
    3,969,934
    
    
    
    4,512,625
    
    
    
    4,521,915
    
    
    
    4,043,553
    
    
    
    3,587,021Average number of common shares in thousands *2
    
    
    1,255,626
    
    
    
    1,293,296
    
    
    
    1,331,542
    
    
    
    1,330,761
    
    
    
    1,328,048Per share data *2:Net income:Basic
    
    ¥
    246.21
    
    
    ¥
    377.59
    
    
    ¥
    341.95
    
    
    ¥
    288.63
    
    
    ¥
    258.53Diluted
    
    
    246.20
    
    
    
    377.53
    
    
    
    341.84
    
    
    
    288.36
    
    
    
    257.85Cash dividends declared
    
    
    110.00
    
    
    
    110.00
    
    
    
    83.33
    
    
    
    66.67
    
    
    
    43.33Cash dividends declared (U.S.$)*3
    
    $
    1.073
    
    
    $
    1.034
    
    
    $
    0.709
    
    
    $
    0.580
    
    
    $
    0.401
 Notes:1.
    
    The above financial data is prepared in accordance with U.S. generally accepted accounting principles.2.
    
    The Company made a three-for-two stock split on July 1, 2006. The average number of common shares and
the per share data for the periods prior to the stock split have been adjusted to reflect the stock
split.3.
    
    Annual cash dividends declared (U.S.$) are 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 or on the latest practicable date.4.
    
    See Note 1-(k) of Notes to Consolidated Financial Statements for information regarding accounting change. 2




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Yen exchange rates per U.S. dollar:
    
    
    Average
    
    

Term end
    
    
    High
    
    
    Low2004
    
    
    
    
    
    
    107.63
    
    
    
    102.68
    
    
    
    114.30
    
    
    
    102.562005
    
    
    
    
    
    
    110.74
    
    
    
    117.88
    
    
    
    120.93
    
    
    
    102.262006
    
    
    
    
    
    
    115.99
    
    
    
    119.02
    
    
    
    119.81
    
    
    
    110.072007
    
    
    
    
    
    
    117.45
    
    
    
    111.71
    
    
    
    124.09
    
    
    
    108.172008
    -Year
    
    
    102.85
    
    
    
    90.79
    
    
    
    110.48
    
    
    
    87.84- 1(st) half
    
    
    
    
    
    
    106.17
    
    
    
    109.70
    
    
    
    96.88- July
    
    
    
    
    
    
    108.10
    
    
    
    108.19
    
    
    
    104.64- August
    
    
    
    
    
    
    108.69
    
    
    
    110.48
    
    
    
    107.59- September
    
    
    
    
    
    
    105.94
    
    
    
    108.85
    
    
    
    104.71- October
    
    
    
    
    
    
    98.28
    
    
    
    106.06
    
    
    
    92.64- November
    
    
    
    
    
    
    95.46
    
    
    
    100.48
    
    
    
    94.98- December
    
    
    
    
    
    
    90.79
    
    
    
    93.71
    
    
    
    87.842009
    - January
    
    
    
    
    
    
    89.83
    
    
    
    94.20
    
    
    
    87.80- February
    
    
    
    
    
    
    97.74
    
    
    
    98.55
    
    
    
    89.09
 Note: The average exchange rates for the periods are the average of the exchange rates on the
last day of each month during the period. 
 B. Capitalization and indebtedness
  
 C. Reasons for the offer and use of proceeds
  
 D. Risk Factors
   Risks Related to Canons Industries
 Canon has invested and will continue to invest heavily in next-generation technologies. If the
market for these technologies does not develop as Canon expects or if its competitors produce these
or competing technologies in a more timely or effective manner, Canons operating results could be
materially adversely affected.
   If Canon does not effectively manage transitions in its products and services, its operating
results may decline.
  3




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Canons digital camera business operates in a highly competitive environment.
  Because the semiconductor industry is highly cyclical, Canon may be adversely affected by any
downturn in the industry.
   Downturns in the semiconductor industry have caused Canons customers to change their
operating strategies, which in turn may affect Canons business.
   The semiconductor equipment industry is characterized by rapid technological change. If Canon
does not constantly develop new products to keep pace with technological change and meet its
customer requirements, Canon may lose customers and its business may suffer.
  Growing popularity of High Definition (HD) and increased diversification of recording media
may adversely affect Canons video camcorder business.
   Risks Related to Canons Business
 Economic trends in Canons major markets may adversely affect its results of operations.
  Canon derives a significant percentage of its revenues from Hewlett-Packard.
  Canon depends on a limited number of suppliers for certain key components.
  4




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Although competition is increasing in the market for sales of supplies and services following
initial product placement, Canon maintains a high market share in sales of such supplies. As a
result, Canon may be subject to antitrust-related suits, investigations or proceedings which may
adversely affect its operating results or reputation.
  Increases in counterfeit Canon products may adversely affect Canons brand image and its
operating results.
  Per unit production costs are highest when a new product is introduced, and if such new
products are not successful or if Canon fails to achieve cost reductions over time, Canons gross
profits may be adversely affected.
  
    
    engineering improvements;
    
    economies of scale;
    
    improvements in manufacturing processes;
    
    improved serviceability of products; and
    
    reduced inventories of parts and products.
  Cyclical patterns in sales of Canons products make planning and inventory management
difficult and future financial results less predictable.
  Canons business is subject to changes in the sales environment.
  Canon is subject to financial and reputational risks due to product quality and liability
issues.
  Canons success depends on the value of its brand name, and if the value of the brand name is
diminished, operating results and prospects will be adversely affected.
  A substantial portion of Canons business activity is conducted outside Japan, exposing Canon
to the risks of international operations.
  
    
    less developed technological infrastructure, which can affect production or other activities or result in
lower customer acceptance of Canons services;
    
    difficulties in recruiting and retaining personnel;
    
    potentially adverse tax consequences, including transfer pricing issues and increases in corporate tax rates;
    
    longer payment cycles;
    
    political turmoil or unfavorable economic factors; and
    
    unexpected legal or regulatory changes.
 5




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Canon depends on efficient logistics services to distribute its products worldwide.
     Risks Related to Environmental Issues
 Canons business is subject to environmental laws and regulations.
    Environmental clean-up and remediation costs relating to Canons properties and associated
litigation could decrease Canons net cash flow, adversely affect its results of operations and
impair its financial condition.
   Risks Related to Intellectual Property
 Canon may be subject to intellectual property litigation and infringement claims, which could
cause it to incur significant expenses or prevent it from selling its products.
  6




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
    
    competitors will be able to develop similar technology independently;
    
    Canons pending patent applications may not be issued;
    
    the steps Canon takes to prevent misappropriation or infringement of
its intellectual property may not be successful; and
    
    intellectual property laws may not adequately protect Canons
intellectual property, particularly in some emerging markets.
   
    
    refrain from selling the affected product in certain markets;
    
    pay monetary damages;
    
    seek to develop non-infringing technologies, which may not be feasible; or
    
    seek to acquire licenses to the infringed technology and to make royalty
payments, which may not be available on commercially reasonable terms, if
at all.
   Disputes involving payment of remuneration for employee inventions may adversely affect
Canons brand image as well as its business.
  Other Risks
 Canons operating and financing activities expose Canon to foreign currency exchange and
interest rate risks that may adversely affect its revenues and profitability.
   Canon must attract and retain highly qualified professionals.
   Canons physical facilities, information systems and information security systems are subject
to damage as a result of disasters, outages or similar events.
  7




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The cooperation and alliances with, and strategic investments in, third parties undertaken by
Canon may not produce successful results. Also, unexpected emergence of strong competitors through
mergers and acquisitions, may affect Canons business environment.
   Canon may be adversely affected by fluctuations in the stock and bond markets.
  Confidential information may be inadvertently disclosed which could lead to damage claims or
harm Canons reputation, and may have an adverse effect upon Canon s business.
   8




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Item 4. Information on the Company
 
 A. History and development of the Company
     
    
    In January 2004, Canon Precision Inc. (Canon Precision), a
wholly-owned subsidiary of Canon Inc., merged with Hirosaki Precision,
Inc. (Hirosaki Precision), a wholly-owned subsidiary of Canon
Precision. Hirosaki Precision was merged into Canon Precision, the
surviving company. Canon Precision targets the improved efficiency and
specialization of business operations. Since both Canon Precision and
Hirosaki Precision were consolidated subsidiaries of Canon Inc., the
merger had no impact on Canons business results.
    
    On September 30, 2005, Canon acquired all of the issued and
outstanding shares of ANELVA Corporation, which possessed advanced
vacuum technology, and made it into a subsidiary. ANELVA Corporations
corporate name was changed to Canon ANELVA Corporation as of October
1, 2005. By making Canon ANELVA Corporation a subsidiary of the
Company, Canon aims to promote in-house manufacturing equipment
production. This in-house capacity will help differentiate Canon
products from the competition in various business areas, including
products manufactured as part of Canons recently acquired display
business.
    
    On October 19, 2005, Canon acquired the shares of NEC Machinery
Corporation (listed on the Second Section of the Osaka Securities
Exchange Co., Ltd.), which possessed advanced automation technologies,
through a tender offer and made it into a subsidiary. NEC Machinery
Corporations corporate name was changed to Canon Machinery Inc. as of
December 17, 2005. By making Canon Machinery Inc. a subsidiary of the
Company, Canon aims to make further advances in its production reform
activities, including the automation of production processes for Canon
products.
    
    On December 27, 2006, Canon Electronics Inc. acquired the shares of
e-System Corporation (listed on the Hercules Section of the Osaka
Securities Exchange) through a third party distribution and made it
into a subsidiary. By making e-System Corporation into a subsidiary,
Canon aims to strengthen its groups information-related business and
develop it into a core business.
    
    On June 21, 2007, Canon Marketing Japan Inc. acquired the shares of
Argo21 Corporation (reorganized to Canon IT Solutions Inc.) through a
tender offer, and made it into a subsidiary. In addition, Canon
Marketing Japan Inc. made it into a wholly-owned subsidiary on
November 1, 2007 by share exchange for outstanding common stock in
order to strengthen its IT solutions business.
    
    On December 28, 2007, Canon acquired the shares of Tokki Corporation
(listed on the JASDAQ Securities Exchange Inc.) through a tender
offer, and made it into a subsidiary. With Tokki Corporation as a
subsidiary, Canon aims to accelerate the development of its display
business.
    
    On February 27, 2008, Canon entered into a stock purchase agreement
with Hitachi, Ltd. (Hitachi) to acquire shares of Hitachi Displays,
Ltd. (Hitachi Displays), a wholly-owned subsidiary of Hitachi, with
the aim of accelerating ongoing development of organic light-emitting
diode (OLED) displays, ensuring stable procurement of LCD panels and
facilitating product development. Under the terms of this agreement,
Canon acquired a 24.9% stake in Hitachi Displays on March 31, 2008.
    
    In July 2008, Nagasaki Canon Inc. was newly established as a
wholly-owned subsidiary of Canon Inc., to boost production of digital
single-lens reflex (SLR) cameras and compact digital cameras.
   
 B. Business overview
       9




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Products
  - Business machines -
  Office imaging products
         Computer peripherals
    +
  10




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Business information products
     -Cameras -
           Optical and other products
   11




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Marketing and distribution
        
 Service
    
 Seasonality
   12




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Sources of supply
    
 NET SALES BY PRODUCT GROUP
 Years ended December 312008
    
    

change
    
    
    2007
    
    
    change
    
    
    2006(Millions of yen, except percentage data)Business machines:Office imaging products
    
    ¥
    1,119,523
    
    
    
    -13.3
    %
    
    ¥
    1,290,788
    
    
    
    8.8
    %
    
    ¥
    1,185,925Computer peripherals
    
    
    1,454,768
    
    
    
    -5.4
    
    
    
    1,537,511
    
    
    
    9.9
    
    
    
    1,398,408Business information products
    
    
    85,728
    
    
    
    -20.1
    
    
    
    107,243
    
    
    
    0.5
    
    
    
    106,7542,660,019
    
    
    
    -9.4
    
    
    
    2,935,542
    
    
    
    9.1
    
    
    
    2,691,087Cameras
    
    
    1,041,947
    
    
    
    -9.6
    
    
    
    1,152,663
    
    
    
    10.6
    
    
    
    1,041,865Optical and other products
    
    
    392,195
    
    
    
    -0.2
    
    
    
    393,141
    
    
    
    -7.2
    
    
    
    423,807Total
    
    ¥
    4,094,161
    
    
    
    -8.6
    
    
    ¥
    4,481,346
    
    
    
    7.8
    
    
    ¥
    4,156,759
 NET SALES BY GEOGRAPHIC AREA
 Years ended December 312008
    
    
    change
    
    
    2007
    
    
    change
    
    
    2006(Millions of yen, except percentage data)JapanUnaffiliated customers
    
    ¥
    998,676
    
    
    
    -4.7
    %
    
    ¥
    1,048,310
    
    
    
    1.0
    %
    
    ¥
    1,037,657Intersegment
    
    
    2,318,521
    
    
    
    -7.0
    
    
    
    2,494,251
    
    
    
    7.9
    
    
    
    2,311,482Total
    
    
    3,317,197
    
    
    
    -6.4
    
    
    
    3,542,561
    
    
    
    5.8
    
    
    
    3,349,139AmericasUnaffiliated customers
    
    ¥
    1,141,560
    
    
    
    -14.1
    %
    
    ¥
    1,329,479
    
    
    
    4.0
    %
    
    ¥
    1,277,867Intersegment
    
    
    3,758
    
    
    
    -18.4
    
    
    
    4,608
    
    
    
    -3.3
    
    
    
    4,764Total
    
    
    1,145,318
    
    
    
    -14.1
    
    
    
    1,334,087
    
    
    
    4.0
    
    
    
    1,282,631EuropeUnaffiliated customers
    
    ¥
    1,337,147
    
    
    
    -10.8
    %
    
    ¥
    1,499,821
    
    
    
    14.1
    %
    
    ¥
    1,313,919Intersegment
    
    
    4,329
    
    
    
    23.8
    
    
    
    3,496
    
    
    
    -2.5
    
    
    
    3,586Total
    
    
    1,341,476
    
    
    
    -10.8
    
    
    
    1,503,317
    
    
    
    14.1
    
    
    
    1,317,505OthersUnaffiliated customers
    
    ¥
    616,778
    
    
    
    2.2
    %
    
    ¥
    603,736
    
    
    
    14.5
    %
    
    ¥
    527,316Intersegment
    
    
    670,678
    
    
    
    -18.7
    
    
    
    824,844
    
    
    
    4.1
    
    
    
    792,018Total
    
    
    1,287,456
    
    
    
    -9.9
    
    
    
    1,428,580
    
    
    
    8.3
    
    
    
    1,319,334EliminationsUnaffiliated customers
    
    ¥
    
    
    
    
    
    %
    
    ¥
    
    
    
    
    
    %
    
    ¥
    Intersegment
    
    
    (2,997,286
    )
    
    
    
    
    
    
    (3,327,199
    )
    
    
    
    
    
    
    (3,111,850
    )Total
    
    
    (2,997,286
    )
    
    
    
    
    
    
    (3,327,199
    )
    
    
    
    
    
    
    (3,111,850
    )ConsolidatedUnaffiliated customers
    
    ¥
    4,094,161
    
    
    
    -8.6
    %
    
    ¥
    4,481,346
    
    
    
    7.8
    %
    
    ¥
    4,156,759Intersegment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    4,094,161
    
    
    
    -8.6
    
    
    
    4,481,346
    
    
    
    7.8
    
    
    
    4,156,759
 
 Note:
    
    The segments are defined under
accounting principles generally
accepted in Japan (Japanese GAAP). In
grouping of segment information by
product, Japanese GAAP requires that
consideration be given to similarities
of product types and characteristics,
manufacturing methods, sales markets,
and other factors that are similar. In
grouping of segment information by
geographic area, Japanese GAAP requires
that consideration be given to
geographic proximity, as well as
similarities of economic activities,
interrelationships of business
activities and other similar factors.
Segment information by geographic area
is determined by the location of the
Company or its relevant subsidiary
making the sale.  13




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##### Table of Contents



Competition
               
 Patents and licenses
  ®
 14




---



##### Table of Contents



Oki Electric Industry Co., Ltd.
    
    (LED printers, multifunction printers and facsimiles)Panasonic Corporation
    
    (electrophotography)Ricoh Company, Ltd.
    
    (electrophotography)Sanyo Electric Co., Ltd.
    
    (electronic still camera)Samsung Electronics Co., Ltd.
    
    (laser beam printers, multifunction printers and facsimiles)Kyocera Mita Corporation
    
    (electrophotography)Konica Minolta Holding Co.,Ltd.
    
    (business machines)Toshiba Corporation
    
    (business machines)Sharp Corporation
    
    (electrophotography)Brother Industries, Ltd.
    
    (electrophotography and facsimiles)
   Jerome H. Lemelson Patent Incentives, Inc.
    
    (computer systems, image recording
apparatus and communication apparatus)Energy Conversion Devices, Inc.
    
    (solar battery)Honeywell International Inc.
    
    (camera and video products)Gilbert P. Hyatt U.S. Philips Corporation
    
    (microcomputer)Applied Nanotech Holdings, Inc.
    
    (FED technology)St. Clair Intellectual Property Consultants, Inc.
    
    (selection of digital cameras image format)
   International Business Machines Corporation
    
    (information handling systems)Hewlett-Packard Company
    
    (bubble jet printers)Xerox Corporation
    
    (business machines)Panasonic Corporation
    
    (video tape recorders and video cameras)Eastman Kodak Company
    
    (electrophotography and image processing technology)Ricoh Company, Ltd.
    
    (electrophotography products, facsimiles and word processors)Seiko Epson Corporation
    
    (information-related instruments)
  
 Environmental regulations
  1.
    
    Kyoto Protocol to the United Nations Framework Convention on Climate Change
    2.
    
    Post-Kyoto Initiatives
  th
 15




---



##### Table of Contents



3.
    
    Soil Pollution Prevention Law of Japan
   4.
    
    Law for Promotion of Effective Utilization of Resources of Japan
  5.
    
    Law on Promoting Green Purchasing of Japan
   
    
    manufacture of products that consume less energy in order to mitigate global warming and to conserve energy,
    
    use of recycled parts and recycled materials,
    
    reduction of the variety of raw materials used in order to preserve resources, and
    
    acceleration of the date by which the requirements of the law are implemented in order to promote the
elimination of hazardous substances.
  6.        European Union Directive on the Restriction of the Use of Certain Hazardous Substances in
Electrical and Electronic Equipment (the RoHS Directive) and Directive on Waste Electrical and Electronic Equipment (the
WEEE Directive)
    7.
    
    The European Framework for the Management of Chemical Substances, or REACH Regulation
    8.
    
    The European Framework for the Setting of Requirements for Energy-Using Products
  16




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##### Table of Contents



9.
    
    European Union Directive on Batteries and Accumulators and Waste Batteries and Accumulators
  10.
    
    U.S. States and Canadas Legislations Concerning Recycling of Waste Electric and Electronic Products
  11.
    
    Administrative Measures on the Control of Pollution Caused by Electronic Information Products of China
     12.
    
    Other Environmental Regulations
  
 C. Organizational structure
   Proportion of
    
    
    Proportion ofownership interest
    
    
    voting powerName of company
    
    Head office location
    
    
    owned
    
    
    heldCanon Marketing Japan Inc.
    
    Tokyo, Japan
    
    
    50.1
    %
    
    
    55.2
    %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
    %
 17




---



##### Table of Contents



D. Property, plants and equipment
  Floor space(includingName and location
    
    leased space)
    
    Principal activities and products manufacturedDomestic
    
    (Thousands ofsquare feet)Headquarters, Tokyo
    
    2,558
    
    R&D, corporate administration and other functionsCanon Global Management Institute, Tokyo
    
    164
    
    Training & administrationKawasaki Office, Kanagawa
    
    807
    
    Development of production engineering and R&D of
semiconductor devicesKosugi Office, Kanagawa
    
    395
    
    Development of software for office imaging productsFuji-Susono Research Park, Shizuoka
    
    1,037
    
    R&D in electrophotographic technologiesAyase Office, Kanagawa
    
    392
    
    R&D and manufacturing of semiconductor devicesOptics R&D Center, Tochigi
    
    472
    
    R&D in optical technologies, development and sales of
broadcasting equipmentTamagawa Office, Kanagawa
    
    155
    
    Quality EngineeringOita Office, Oita
    
    192
    
    Manufacturing of semiconductor devicesYako Development Center, Kanagawa
    
    903
    
    Development of inkjet printers, inkjet chemical productsUtsunomiya Plant, Tochigi
    
    856
    
    Manufacturing of lenses for cameras and other applicationsToride Plant, Ibaraki
    
    2,895
    
    R&D in electrophotographic technologies, mass-production
trials and support; manufacturing of office imaging
products, chemical products; training of manufacturingAmi Plant, Ibaraki
    
    1,140
    
    Manufacturing of LCD production equipmentUtsunomiya Optical Products Plant, Tochigi
    
    1,418
    
    R&D, manufacturing, sales and servicing of semiconductor
production equipmentCanon Electronics Inc., Saitama and Gunma
    
    1,201
    
    Components, magnetic heads, document scanners, and LBPsCanon Finetech Inc., Saitama, Ibaraki,
and Fukui
    
    988
    
    Large format printers, business-use printers, copying
machines peripherals and chemical productsCanon Precision Inc., Aomori
    
    1,720
    
    Toner cartridges, sensors and motorsOptron Inc., Ibaraki
    
    149
    
    Optical crystals (for steppers, cameras, telescopes) and
vapor deposition materials
 18




---



##### Table of Contents



Floor space(includingName and location
    
    leased space)
    
    Principal activities and products manufacturedDomestic
    
    (Thousands ofsquare feet)Canon Chemicals Inc., Ibaraki
    

    2,093
    
    Toner cartridges and rubber functional componentsCanon Components Inc., Saitama
    

    575
    
    Image sensor units, ink cartridges and medical equipmentOita Canon Inc., Oita
    

    1,346
    
    Digital cameras, lenses and digital video camcordersNagahama Canon Inc., Shiga
    

    1,092
    
    LBPs, toner cartridges and A-Si drumsOita Canon Materials Inc., Oita
    

    2,536
    
    Chemical products for copying machines and printers, and
inkjet cartridgesUeno Canon Materials Inc., Mie
    

    638
    
    Chemical products for copying machines and printersFukushima Canon Inc., Fukushima
    

    971
    
    Inkjet printers and inkjet cartridgesCanon Semiconductor Equipment Inc.,
Ibaraki
    

    545
    
    Semiconductor production-related equipmentCanon Ecology Industry Inc., Ibaraki and
Saitama
    

    405
    
    Recycling of toner cartridges and business machine repairNisca Corporation, Yamanashi
    

    379
    
    Copying machine peripherals, scanner units and optical
equipmentMiyazaki Daishin Canon Co., Ltd., Miyazaki
    

    152
    
    Digital camerasCanon Mold Co., Ltd., Ibaraki
    

    106
    
    MoldsCanon ANELVA Corporation, Kanagawa and
Yamanashi
    

    929
    
    Production equipment for electron devices, Flat Panel
Display and semiconductorsCanon Machinery Inc., Shiga
    

    634
    
    Production equipment for cartridges and semiconductorsTokki Corporation, Tokyo and Niigata
    

    189
    
    Vacuum technology-related equipmentSED Inc., Kanagawa
    

    1,082
    
    Flat-screen SED (Surface-conduction Electron-emitter Display) panels
 19




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##### Table of Contents



Floor space(includingName and location
    
    Leased space)
    
    Principal activities and products manufacturedOverseas
    
    (Thousands ofsquare feet)[Europe]Canon Giessen GmbH, Giessen, Germany
    

    362
    
    Recycling of copying machines and semiconductor
productionequipmentCanon Bretagne S.A.S., Liffre, France
    

    506
    
    Toner cartridges and recycling of toner cartridges[Americas]Canon Virginia, Inc., Virginia, U.S.
    

    953
    
    Toner cartridges, mold and remanufacturing of
copying machinesIndustrial Resource Technologies, Inc., Virginia, U.S.
    

    185
    
    Recycling of toner cartridges[Asia]Canon Inc., Taiwan, Taiwan
    

    432
    
    LensesCanon Opto (Malaysia) Sdn. Bhd., Selangor, Malaysia
    

    582
    
    Digital cameras, lenses and optical lens partsCanon Dalian Business Machines, Inc., Dalian, China
    

    1,299
    
    LBPs and toner cartridgesCanon Zhuhai, Inc., Zhuhai, China
    

    895
    
    LBPs, MFPs, digital cameras and image sensor unitsTianjin Canon Inc., Tianjin, China
    

    148
    
    Copying machinesCanon Hi-Tech Thailand Ltd., Ayutthaya, Thailand
    

    1,264
    
    Inkjet printers, MFPs and scannersCanon Ayutthaya Thailand Ltd., Ayutthaya, Thailand
    

    182
    
    Circuit boards for inkjet printersCanon Engineering Thailand Ltd., Ayutthaya, Thailand
    

    129
    
    Metal molds and plastic injection mold partsCanon Zhougshan Business Machines Co., Ltd.,
Zhougshan, China
    

    496
    
    LBPsCanon Vietnam Co., Ltd., Hanoi, Vietnam
    

    3,219
    
    Inkjet printers, LBPs, MFPs, scanners and image
sensor unitsCanon (Suzhou) Inc., Suzhou, China
    

    1,091
    
    Copying machinesCanon Finetech (Suzhou) Business Machines Inc.,
Suzhou, China
    

    398
    
    Copying machinesThai Nisca Co.Ltd., Ayutthaya, Thailand
    

    190
    
    Optical equipment and copying machine peripheralsCanon Finetech Nisca (Shenzhen) Inc., Shenzhen, China
    

    478
    
    Copying machines and LBP peripherals
  Main facilities under construction for establishment/expansion
 Name and location
    
    Principal activities and products manufacturedDomesticCanon
Inc., Kawasaki Office, Kanagawa
    
    New R&D buildingOita Canon Materials Inc., Oita
    
    New production base* (business machines operations)*To be leased to Oita Canon
Materials Inc. by the CompanyCanon Inc., Toride Plant, Ibaraki
    
    New production base (business machines operations)Overseas[Americas]Canon Virginia Inc., Virginia, U.S.
    
    New production base (business machines operations)
 
 Item 4A. Unresolved Staff Comments
  20




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Item 5. Operating and Financial Review and Prospects
 
 A. Operating Results
  
 Overview
   Economic environment
  Market environment
  Summary of operations
  Key performance indicators
  KEY PERFORMANCE INDICATORS
 2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Net sales (Millions of yen)
    
    ¥
    4,094,161
    
    
    ¥
    4,481,346
    
    
    ¥
    4,156,759
    
    
    ¥
    3,754,191
    
    
    ¥
    3,467,853Gross profit to net sales ratio
    
    
    47.3
    %
    
    
    50.1
    %
    
    
    49.6
    %
    
    
    48.5
    %
    
    
    49.4
    %R&D expense to net sales ratio
    
    
    9.1
    %
    
    
    8.2
    %
    
    
    7.4
    %
    
    
    7.6
    %
    
    
    7.9
    %Operating profit to net sales ratio
    
    
    12.1
    %
    
    
    16.9
    %
    
    
    17.0
    %
    
    
    15.5
    %
    
    
    15.7
    %Inventory turnover within days
    
    47 days
    
    44 days
    
    45 days
    
    47 days
    
    49 daysDebt to total assets ratio
    
    
    0.4
    %
    
    
    0.6
    %
    
    
    0.7
    %
    
    
    0.8
    %
    
    
    1.1
    %Stockholders equity to total assets ratio
    
    
    67.0
    %
    
    
    64.8
    %
    
    
    66.0
    %
    
    
    64.4
    %
    
    
    61.6
    %
 
 Note:
    
    Inventory turnover within days; Inventory divided by net sales for the previous six months,
multiplied by 182.5.     21




---



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Critical accounting policies and estimates
             22




---



##### Table of Contents



23




---



##### Table of Contents



Consolidated
results of operations
 
 Fiscal 2008 compared with fiscal 2007
  2008
    
    
    Change
    
    
    2007(Millions of yen, except per shareamounts and percentage data)Net sales
    
    ¥
    4,094,161
    
    
    
    - 8.6
    %
    
    ¥
    4,481,346Operating profit
    
    
    496,074
    
    
    
    - 34.4
    
    
    
    756,673Income before income taxes and minority interests
    
    
    481,147
    
    
    
    - 37.4
    
    
    
    768,388Net income
    
    
    309,148
    
    
    
    - 36.7
    
    
    
    488,332Net income per share:Basic
    
    
    246.21
    
    
    
    - 34.8
    
    
    
    377.59Diluted
    
    
    246.20
    
    
    
    - 34.8
    
    
    
    377.53
 Note:
    
    See notes to Item 3A Selected Financial Data. Sales
    Cost of sales
  Gross profit
  Operating expenses
  Operating profit
  Other income (deductions)
  Income before income taxes and minority interests
  Income taxes
  Net income
  24




---



##### Table of Contents




    
    The business machines product group includes office imaging products,
computer peripherals and business information products.
 
    
    Office imaging products include mainly
office network digital MFDs, color network
digital MFDs, office copying machines,
personal-use copying machines and full-color
copying machines.
    
    Computer peripherals include mainly laser
beam printers, inkjet multifunction
peripherals, single function inkjet printers
and image scanners.
    
    Business information products include mainly
computer information systems, document
scanners and personal information products.
 
    
    The cameras product group
includes mainly digital SLR cameras, compact digital cameras, interchangeable lenses and digital video camcorders.
    
    The optical and other products product group includes mainly
semiconductor production equipment, mirror projection mask aligners
for LCD panels, broadcasting equipment, medical equipment, large
format printers and related components.
 Sales by product
  2008
    
    
    Change
    
    
    2007(Millions of yen, except percentage data)Business machines:Office imaging products
    
    ¥
    1,119,523
    
    
    
    - 13.3
    %
    
    ¥
    1,290,788Computer peripherals
    
    
    1,454,768
    
    
    
    - 5.4
    
    
    
    1,537,511Business information products
    
    
    85,728
    
    
    
    - 20.1
    
    
    
    107,243Total business machines
    
    
    2,660,019
    
    
    
    - 9.4
    
    
    
    2,935,542Cameras
    
    
    1,041,947
    
    
    
    - 9.6
    
    
    
    1,152,663Optical and other products
    
    
    392,195
    
    
    
    - 0.2
    
    
    
    393,141Total
    
    ¥
    4,094,161
    
    
    
    - 8.6
    %
    
    ¥
    4,481,346
       Sales by region
  2008
    
    
    Change
    
    
    2007(Millions of yen, except percentage data)Japan
    
    ¥
    868,280
    
    
    
    - 8.4
    %
    
    ¥
    947,587Americas
    
    
    1,154,571
    
    
    
    - 13.6
    
    
    
    1,336,168Europe
    
    
    1,341,400
    
    
    
    - 10.5
    
    
    
    1,499,286Others
    
    
    729,910
    
    
    
    + 4.5
    
    
    
    698,305Total
    
    ¥
    4,094,161
    
    
    
    - 8.6
    %
    
    ¥
    4,481,346
 Note:
    
    This summary of net sales by region of destination is determined by the location of the customer.    25




---



##### Table of Contents



Operating profit by product
    
 Fiscal 2007 compared with fiscal 2006
  2007
    
    
    Change
    
    
    2006(Millions of yen, except per shareamounts and percentage data)Net sales
    
    ¥
    4,481,346
    
    
    
    + 7.8
    %
    
    ¥
    4,156,759Operating profit
    
    
    756,673
    
    
    
    + 7.0
    
    
    
    707,033Income before income taxes and minority interests
    
    
    768,388
    
    
    
    + 6.8
    
    
    
    719,143Net income
    
    
    488,332
    
    
    
    + 7.2
    
    
    
    455,325Net income per share:Basic
    
    
    377.59
    
    
    
    +10.4
    
    
    
    341.95Diluted
    
    
    377.53
    
    
    
    +10.4
    
    
    
    341.84
 Note:
    
    See notes to Item 3A Selected Financial Data. Sales
    Cost of sales
  Gross profit
  Operating expenses
  Operating profit
   Other income (deductions)
  Income before income taxes and minority interests
  26




---



##### Table of Contents



Income taxes
  Net income
    
    
    The business machines product group includes office imaging products,
computer peripherals and business information products.
 
    
    Office imaging products include mainly
office network digital MFDs, color network
digital MFDs, office copying machines,
personal-use copying machines and full-color
copying machines.
    
    Computer peripherals include mainly laser
beam printers, inkjet multifunction
peripherals, single function inkjet printers
and image scanners.
    
    Business information products include mainly
computer information systems, document
scanners and personal information products.
 
    
    The cameras product group
includes mainly digital SLR cameras, compact digital cameras, interchangeable lenses and digital video camcorders.
    
    The optical and other products product group includes mainly
semiconductor production equipment, mirror projection mask aligners
for LCD panels, broadcasting equipment, medical equipment, large
format printers and related components.
 Sales by product
  2007
    
    

Change
    
    
    2006(Millions of yen, except percentage data)Business machines:Office imaging products
    
    ¥
    1,290,788
    
    
    
    + 8.8
    %
    
    ¥
    1,185,925Computer peripherals
    
    
    1,537,511
    
    
    
    + 9.9
    
    
    
    1,398,408Business information products
    
    
    107,243
    
    
    
    + 0.5
    
    
    
    106,754Total business machines
    
    
    2,935,542
    
    
    
    + 9.1
    
    
    
    2,691,087Cameras
    
    
    1,152,663
    
    
    
    + 10.6
    
    
    
    1,041,865Optical and other products
    
    
    393,141
    
    
    
    - 7.2
    
    
    
    423,807Total
    
    ¥
    4,481,346
    
    
    
    + 7.8
    %
    
    ¥
    4,156,759
       27




---



##### Table of Contents



Sales by region
  2007
    
    
    Change
    
    
    2006(Millions of yen, except percentage data)Japan
    
    ¥
    947,587
    
    
    
    + 1.6
    %
    
    ¥
    932,290Americas
    
    
    1,336,168
    
    
    
    + 4.1
    
    
    
    1,283,646Europe
    
    
    1,499,286
    
    
    
    +14.1
    
    
    
    1,314,305Others
    
    
    698,305
    
    
    
    +11.5
    
    
    
    626,518Total
    
    ¥
    4,481,346
    
    
    
    + 7.8
    %
    
    ¥
    4,156,759
 Note:
    
    This summary of net sales by region of destination is determined by the location of the customer.      Operating profit by product
    28




---



##### Table of Contents



Segment information by product and geographic area
   As of/for the year ended December 31, 2008OpticalBusiness
    
    
    
    
    
    
    and other
    
    
    Corporate andmachines
    
    
    Cameras
    
    
    products
    
    
    Eliminations
    
    
    Consolidated(Millions of yen)Net sales:Unaffiliated customers
    
    ¥
    2,660,019
    
    
    ¥
    1,041,947
    
    
    ¥
    392,195
    
    
    ¥
    
    
    
    ¥
    4,094,161Intersegment
    
    
    
    
    
    
    
    
    
    
    235,690
    
    
    
    (235,690
    )
    
    
    Total
    
    
    2,660,019
    
    
    
    1,041,947
    
    
    
    627,885
    
    
    
    (235,690
    )
    
    
    4,094,161Operating cost and expenses
    
    
    2,115,375
    
    
    
    854,160
    
    
    
    673,375
    
    
    
    (44,823
    )
    
    
    3,598,087Operating profit
    
    ¥
    544,644
    
    
    ¥
    187,787
    
    
    ¥
    (45,490
    )
    
    ¥
    (190,867
    )
    
    ¥
    496,074Assets
    
    ¥
    1,487,885
    
    
    ¥
    499,287
    
    
    ¥
    495,095
    
    
    ¥
    1,487,667
    
    
    ¥
    3,969,934Depreciation and amortization
    
    
    163,920
    
    
    
    39,412
    
    
    
    88,017
    
    
    
    49,988
    
    
    
    341,337Increase in property, plant and equipment
    
    
    172,197
    
    
    
    43,086
    
    
    
    68,542
    
    
    
    78,163
    
    
    
    361,988
 As of/for the year ended December 31, 2007OpticalBusiness
    
    
    
    
    
    
    and other
    
    
    Corporate andmachines
    
    
    Cameras
    
    
    products
    
    
    Eliminations
    
    
    Consolidated(Millions of yen)Net sales:Unaffiliated customers
    
    ¥
    2,935,542
    
    
    ¥
    1,152,663
    
    
    ¥
    393,141
    
    
    ¥
    
    
    
    ¥
    4,481,346Intersegment
    
    
    
    
    
    
    
    
    
    
    238,659
    
    
    
    (238,659
    )
    
    
    Total
    
    
    2,935,542
    
    
    
    1,152,663
    
    
    
    631,800
    
    
    
    (238,659
    )
    
    
    4,481,346Operating cost and expenses
    
    
    2,285,281
    
    
    
    845,237
    
    
    
    610,720
    
    
    
    (16,565
    )
    
    
    3,724,673Operating profit
    
    ¥
    650,261
    
    
    ¥
    307,426
    
    
    ¥
    21,080
    
    
    ¥
    (222,094
    )
    
    ¥
    756,673Assets
    
    ¥
    1,762,167
    
    
    ¥
    561,504
    
    
    ¥
    544,734
    
    
    ¥
    1,644,220
    
    
    ¥
    4,512,625Depreciation and amortization
    
    
    159,309
    
    
    
    37,180
    
    
    
    69,843
    
    
    
    75,362
    
    
    
    341,694Increase in property, plant and equipment
    
    
    166,143
    
    
    
    32,870
    
    
    
    78,449
    
    
    
    151,087
    
    
    
    428,549
 As of/for the year ended December 31, 2006OpticalBusiness
    
    
    
    
    
    
    and other
    
    
    Corporate andmachines
    
    
    Cameras
    
    
    products
    
    
    Eliminations
    
    
    Consolidated(Millions of yen)Net sales:Unaffiliated customers
    
    ¥
    2,691,087
    
    
    ¥
    1,041,865
    
    
    ¥
    423,807
    
    
    ¥
    
    
    
    ¥
    4,156,759Intersegment
    
    
    
    
    
    
    
    
    
    
    190,687
    
    
    
    (190,687
    )
    
    
    Total
    
    
    2,691,087
    
    
    
    1,041,865
    
    
    
    614,494
    
    
    
    (190,687
    )
    
    
    4,156,759Operating cost and expenses
    
    
    2,091,858
    
    
    
    773,127
    
    
    
    573,019
    
    
    
    11,722
    
    
    
    3,449,726Operating profit
    
    ¥
    599,229
    
    
    ¥
    268,738
    
    
    ¥
    41,475
    
    
    ¥
    (202,409
    )
    
    ¥
    707,033Assets
    
    ¥
    1,617,198
    
    
    ¥
    542,866
    
    
    ¥
    501,008
    
    
    ¥
    1,860,843
    
    
    ¥
    4,521,915Depreciation and amortization
    
    
    127,873
    
    
    
    28,756
    
    
    
    37,018
    
    
    
    68,647
    
    
    
    262,294Increase in property, plant and equipment
    
    
    154,259
    
    
    
    31,517
    
    
    
    36,272
    
    
    
    157,609
    
    
    
    379,657
 Notes:(1)
    
    General corporate expenses of ¥190,698 million, ¥221,979 million and
¥202,328 million in the years ended December 31, 2008, 2007 and 2006,
respectively, are included in Corporate and Eliminations.(2)
    
    Corporate assets of ¥1,487,667 million, ¥1,644,220 million and
¥1,860,933 million as of December 31, 2008, 2007 and 2006,
respectively, which mainly consist of cash and cash equivalents,
short-term investments, investments and corporate properties, are
included in Corporate and Eliminations.(3)
    
    The segments are defined under Japanese GAAP. In grouping of segment
information by product, Japanese GAAP requires that consideration be
given to similarities of product types and characteristics,
manufacturing methods, sales markets, and other factors that are
similar.(4)
    
    As noted in Note 1-(k) of the Notes to Consolidated Financial
Statements, effective April 1, 2007, the Company and its domestic
subsidiaries elected to change the declining-balance method of
depreciating machinery and equipment.
The change in depreciation methods caused an increase in depreciation
expense by ¥29,148 million in the Business machines segment, ¥6,451
million in the Cameras segment, ¥15,540 million in the Optical and
other products segment and ¥12,634 million in Corporate and
Eliminations. 29




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##### Table of Contents



As of/for the year ended December 31, 2008Corporate andJapan
    
    
    Americas
    
    
    Europe
    
    
    Others
    
    
    Eliminations
    
    
    Consolidated(Millions of yen)Net sales:Unaffiliated customers
    
    ¥
    998,676
    
    
    ¥
    1,141,560
    
    
    ¥
    1,337,147
    
    
    ¥
    ¥616,778
    
    
    ¥
    
    
    
    ¥
    4,094,161Intersegment
    
    
    2,318,521
    
    
    
    3,758
    
    
    
    4,329
    
    
    
    670,678
    
    
    
    (2,997,286
    )
    
    
    Total
    
    
    3,317,197
    
    
    
    1,145,318
    
    
    
    1,341,476
    
    
    
    1,287,456
    
    
    
    (2,997,286
    )
    
    
    4,094,161Operating cost and expenses
    
    
    2,757,356
    
    
    
    1,136,288
    
    
    
    1,314,942
    
    
    
    1,247,156
    
    
    
    (2,857,655
    )
    
    
    3,598,087Operating profit
    
    ¥
    559,841
    
    
    ¥
    9,030
    
    
    ¥
    26,534
    
    
    ¥
    ¥40,300
    
    
    ¥
    (139,631
    )
    
    ¥
    496,074Assets
    
    ¥
    1,908,675
    
    
    ¥
    458,189
    
    
    ¥
    477,571
    
    
    ¥
    ¥317,684
    
    
    ¥
    807,815
    
    
    ¥
    3,969,934
 As of/for the year ended December 31, 2007Corporate andJapan
    
    
    Americas
    
    
    Europe
    
    
    Others
    
    
    Eliminations
    
    
    Consolidated(Millions of yen)Net sales:Unaffiliated customers
    
    ¥
    1,048,310
    
    
    ¥
    1,329,479
    
    
    ¥
    1,499,821
    
    
    ¥
    603,736
    
    
    ¥
    
    
    
    ¥
    4,481,346Intersegment
    
    
    2,494,251
    
    
    
    4,608
    
    
    
    3,496
    
    
    
    824,844
    
    
    
    (3,327,199
    )
    
    
    Total
    
    
    3,542,561
    
    
    
    1,334,087
    
    
    
    1,503,317
    
    
    
    1,428,580
    
    
    
    (3,327,199
    )
    
    
    4,481,346Operating cost and expenses
    
    
    2,722,672
    
    
    
    1,281,805
    
    
    
    1,441,972
    
    
    
    1,378,306
    
    
    
    (3,100,082
    )
    
    
    3,724,673Operating profit
    
    ¥
    819,889
    
    
    ¥
    52,282
    
    
    ¥
    61,345
    
    
    ¥
    50,274
    
    
    ¥
    (227,117
    )
    
    ¥
    756,673Assets
    
    ¥
    2,715,294
    
    
    ¥
    506,295
    
    
    ¥
    732,579
    
    
    ¥
    367,234
    
    
    ¥
    191,223
    
    
    ¥
    4,512,625
 As of/for the year ended December 31, 2006Corporate andJapan
    
    
    Americas
    
    
    Europe
    
    
    Others
    
    
    Eliminations
    
    
    Consolidated(Millions of yen)Net sales:Unaffiliated customers
    
    ¥
    1,037,657
    
    
    ¥
    1,277,867
    
    
    ¥
    1,313,919
    
    
    ¥
    527,316
    
    
    ¥
    
    
    
    ¥
    4,156,759Intersegment
    
    
    2,311,482
    
    
    
    4,764
    
    
    
    3,586
    
    
    
    792,018
    
    
    
    (3,111,850
    )
    
    
    Total
    
    
    3,349,139
    
    
    
    1,282,631
    
    
    
    1,317,505
    
    
    
    1,319,334
    
    
    
    (3,111,850
    )
    
    
    4,156,759Operating cost and expenses
    
    
    2,558,685
    
    
    
    1,236,138
    
    
    
    1,272,463
    
    
    
    1,275,817
    
    
    
    (2,893,377
    )
    
    
    3,449,726Operating profit
    
    ¥
    790,454
    
    
    ¥
    46,493
    
    
    ¥
    45,042
    
    
    ¥
    43,517
    
    
    ¥
    (218,473
    )
    
    ¥
    707,033Assets
    
    ¥
    2,644,116
    
    
    ¥
    432,001
    
    
    ¥
    682,381
    
    
    ¥
    339,314
    
    
    ¥
    424,103
    
    
    ¥
    4,521,915
 Notes:(1)
    
    General corporate expenses of ¥190,698 million, ¥221,979 million and
¥202,328 million in the years ended December 31, 2008, 2007 and 2006,
respectively, are included in Corporate and Eliminations.(2)
    
    Corporate assets of ¥1,487,667 million, ¥1,644,220 million and
¥1,860,933 million as of December 31, 2008, 2007 and 2006,
respectively, which mainly consist of cash and cash equivalents,
short-term investments, investments and corporate properties, are
included in Corporate and Eliminations.(3)
    
    Segment information by geographic area is determined by the location
of the Company or its relevant subsidiary making the sale. The
segments are defined under Japanese GAAP. In grouping of segment
information by geographic area, Japanese GAAP requires that
consideration be given to geographic proximity, as well as
similarities of economic activities, interrelationships of business
activities and other similar factors. 30




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##### Table of Contents



Foreign operations and foreign currency transactions
   
 B. Liquidity and capital resources
               31




---



##### Table of Contents



C. Research and development, patents and licenses
  
    
    Realize an overwhelming No.1 position worldwide in all current core businesses;
    
    Expand operations through diversification;
    
    Identify new business domains and accumulate necessary technological capabilities; and
    
    Establish new production system to sustain global competitiveness;
  
    
    Realize an overwhelming No.1 position worldwide in all current core businesses: Pursue
development of new products which enable cross-media imaging by sophisticated functional
synergy among the variety of Canons image handling products, benefiting from the
proliferation of broad band communication environment.
    
    Expand operations through diversification: Focus on developing various types of display,
including Surface-conduction Electron-emitter Display (SED) and OLED.
    
    Identify new business domains and accumulate necessary technological capabilities: Accumulate
technological capability in each of the medical imaging sector, intelligent robot industry and
safety technology domain.
     ®
 32




---



##### Table of Contents



D. Trend information
       Business machines segment
         Cameras segment
   33




---



##### Table of Contents



Optical and other products segment
      
 E. Off-balance sheet arrangements
   34




---



##### Table of Contents



F. Contractual obligations
  Payments Due By PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 years(Millions of yen)Contractual obligations:Long-Term Debt:Capital Lease Obligations
    
    ¥
    13,648
    
    
    ¥
    5,313
    
    
    ¥
    7,388
    
    
    ¥
    924
    
    
    ¥
    23Other Long-Term Debt
    
    
    95
    
    
    
    7
    
    
    
    27
    
    
    
    33
    
    
    
    28Operating Lease Obligations
    
    
    52,049
    
    
    
    15,221
    
    
    
    18,946
    
    
    
    9,107
    
    
    
    8,775Purchase commitments for :Property, Plant and Equipment
    
    
    74,909
    
    
    
    74,909
    
    
    
    
    
    
    
    
    
    
    
    Parts and Raw Materials
    
    
    60,281
    
    
    
    60,281
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    ¥
    200,982
    
    
    ¥
    155,731
    
    
    ¥
    26,361
    
    
    ¥
    10,064
    
    
    ¥
    8,826
 
 Note:
    
    The table does not include provisions for uncertain tax positions and related accrued
interest and penalties, as the specific timing of future payments related to these obligations
cannot be projected with reasonable certainty. See Note 13, Income Taxes in the Notes to
Consolidated Financial Statements for further details.     35




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##### Table of Contents



Item 6. Directors, Senior Management and Employees
 
 A. Directors and senior management
  Name
    
    Position
    
    Date of
    
    Business experience(Date of birth)
    
    (Group executive/function)
    
    commencement
    
    (*current position/function)Fujio Mitarai
    
    Chairman & CEO
    
    
    4/1961
    
    
    Entered the Company(Sept. 23, 1935)
    
    
    
    
    1/1979
    
    
    President of Canon U.S.A., Inc.3/1981
    
    
    Director3/1985
    
    
    Managing Director1/1989
    
    
    In charge of HQ administration3/1989
    
    
    Senior Managing Director3/1993
    
    
    Executive Vice President9/1995
    
    
    President & CEO3/2006
    
    
    Chairman of the Board & President & CEO5/2006
    
    
    Chairman & CEO*Tsuneji Uchida
    
    President & COO
    
    
    4/1965
    
    
    Entered the Company(Oct. 30, 1941)
    
    
    
    
    4/1995
    
    
    Group Executive of Lens Products Group3/1997
    
    
    Director4/1997
    
    
    Deputy Chief Executive of Camera Operations HQGroup Executive of Photo Products Group4/1999
    
    
    Chief Executive of Camera Operations HQ7/1999
    
    
    In charge of promotion of digital photo business1/2000
    
    
    In charge of promotion of digital photo home business1/2001
    
    
    Chief Executive of Image Communications Products HQ3/2001
    
    
    Managing Director3/2003
    
    
    Senior Managing Director3/2006
    
    
    Executive Vice President5/2006
    
    
    President & COO *Toshizo Tanaka
    
    Executive Vice President & CFO
    
    
    4/1964
    
    
    Entered the Company(Oct. 8, 1940)
    
    (Group Executive of Policy and
    
    
    1/1992
    
    
    Deputy Group Executive of Finance & Accounting HQEconomy Research HQ)
    
    
    3/1995
    
    
    Director4/1995
    
    
    Group Executive of Finance & Accounting HQ3/1997
    
    
    Managing Director3/2001
    
    
    Senior Managing Director1/2007
    
    
    Group Executive of Policy and Economy Research HQ*3/2007
    
    
    Executive Vice President*Toshiaki Ikoma
    
    Executive Vice President & CTO
    
    
    4/1982
    
    
    Professor of Institute of Industrial Science, the
University of Tokyo(Mar. 5, 1941)
    
    (Group Executive of
    
    
    2/1997
    
    
    President of Texas Instruments Japan LimitedCorporate R&D HQ)
    
    
    2/2002
    
    
    Chairman of the Board of Texas Instruments Japan Limited11/2002
    
    
    Adviser of Texas Instruments Japan Limited4/2003
    
    
    Corporate Auditor of Industrial Revitalization
Corporation of Japan (IRCJ)6/2003
    
    
    Auditor (Outside) of Hitachi Metals, Ltd.*7/2003
    
    
    Senior Fellow of Japan Science and Technology Agency
(JST)4/2004
    
    
    Auditor (Outside) of Center for National University
Finance and Management*10/2004
    
    
    Director-General of Center for Research and Development
Strategy (CRDS),Japan Science and Technology Agency (JST)4/2005
    
    
    Entered the CompanyAdviser of the Company7/2007
    
    
    Adviser of Research and Development1/2008
    
    
    Chief Technology Adviser4/2008
    
    
    Group Executive of Frontier Research HQ and Core
TechnologyDevelopment HQ12/2008
    
    
    President of Canon Foundation*1/2009
    
    
    Group Executive of Corporate R&D HQ*3/2009
    
    
    Executive Vice President*Nobuyoshi Tanaka
    
    Senior Managing Director
    
    
    4/1970
    
    
    Entered the Company(Dec. 23, 1945)
    
    (Group Executive of Corporate
    
    
    1/1991
    
    
    Senior General Manager of Semiconductor ProductionIntellectual Property & Legal HQ)
    
    
    
    
    
    Equipment Development Center3/1993
    
    
    Director4/1993
    
    
    Chief Executive of Optical Products HQ4/1999
    
    
    Group Executive of Corporate Intellectual Property &
Legal HQ*3/2001
    
    
    Managing Director3/2006
    
    
    Senior Managing Director*
 36




---



##### Table of Contents



Name
    
    Position
    
    Date of
    
    Business experience(Date of birth)
    
    (Group executive/function)
    
    commencement
    
    (*current position/function)Junji Ichikawa
    
    Senior Managing Director
    
    
    4/1965
    
    
    Entered Shiba Electronics Co., Ltd.(Feb. 9, 1943)
    
    (Chief Executive of Optical Products HQ)
    
    
    1/1970
    
    
    Entered the Company4/1994
    
    
    Group Executive of Peripheral Group 13/1997
    
    
    Director4/1997
    
    
    Deputy Chief Executive of Peripheral Products HQ4/2000
    
    
    Chief Executive of Peripheral Products HQ3/2001
    
    
    Managing Director4/2003
    
    
    Group Executive of Production Management HQ4/2004
    
    
    Chief Executive of Optical Products HQ*3/2006
    
    
    Senior Managing Director*Akiyoshi Moroe
    
    Senior Managing Director
    
    
    4/1968
    
    
    Entered the Company(Sept. 28, 1944)
    
    (Group Executive of External
Relations HQ,Group Executive
of General Affairs HQ,
    
    
    7/1996
    
    
    Deputy Group Executive of Human Resource Management &Organization HQGroup Executive of Human Resource
    
    
    3/1999
    
    
    DirectorManagement & Organization HQ)
    
    
    4/1999
    
    
    Group Executive of General Affairs HQ10/2000
    
    
    Group Executive of Information & Communications
Systems HQ3/2003
    
    
    Managing Director5/2006
    
    
    Group Executive of External Relations HQ*4/2007
    
    
    Group Executive of Human Resource Management &
Organization HQ3/2008
    
    
    Senior Managing Director *Group Executive of General Affairs
HQ*1/2009
    
    
    Group Executive of Human Resource
Management & Organization HQ*Kunio Watanabe
    
    Senior Managing Director
    
    
    4/1969
    
    
    Entered the Company(Oct. 3, 1944)
    
    (Group Executive of Corporate Planning
    
    
    4/1995
    
    
    Group Executive of Corporate Planning Development
HQ*Development HQ, Deputy Group Executive of
    
    
    3/1999
    
    
    DirectorPolicy and
Economy Research HQ)
    
    
    3/2003
    
    
    Managing Director1/2007
    
    
    Deputy Group Executive of Policy and Economy
Research HQ*3/2008
    
    
    Senior Managing Director*Yoroku Adachi
    
    Senior Managing Director
    
    
    4/1970
    
    
    Entered the Company(Jan. 11, 1948)
    
    
    
    
    3/2001
    
    
    Chairman of Canon Singapore Pte. Ltd.Chairman of Canon Hong Kong Co., Ltd.Director4/2003
    
    
    President of Canon (China) Co., Ltd.3/2005
    
    
    Managing Director4/2005
    
    
    President of Canon U.S.A., Inc.*3/2009
    
    
    Senior Managing Director*Yasuo Mitsuhashi
    
    Senior Managing Director
    
    
    4/1974
    
    
    Entered the Company(Nov. 23, 1949)
    
    (Chief Executive of Peripheral Products HQ)
    
    
    2/2001
    
    
    Chief Executive of Chemical Products HQ3/2001
    
    
    Director4/2003
    
    
    Chief Executive of Peripheral Products HQ*3/2005
    
    
    Managing Director3/2009
    
    
    Senior Managing Director *Tomonori Iwashita
    
    Managing Director
    
    
    4/1972
    
    
    Entered the Company(Jan. 28, 1949)
    
    (Group Executive of Environment
HQ,
    
    
    4/1999
    
    
    Senior General Manager of Camera Development CenterGroup Executive of Quality Management HQ)
    
    
    1/2001
    
    
    Group Executive of Photo Products Group3/2003
    
    
    Director4/2003
    
    
    Deputy Chief Executive of Image Communication
Products HQ4/2006
    
    
    Chief Executive of Image Communication Products HQ3/2007
    
    
    Managing Director*Group Executive of Global Environment Promotion HQ4/2007
    
    
    Group Executive of Quality Management HQ *1/2008
    
    
    Group Executive of Environment HQ*Masahiro Osawa
    
    Managing Director
    
    
    4/1971
    
    
    Entered the Company(May 26, 1947)
    
    (Group Executive of Finance & Accounting HQ)
    
    
    7/1997
    
    
    Vice President of Canon U.S.A., Inc.2/2003
    
    
    Senior Vice President of Canon U.S.A., Inc.7/2003
    
    
    Deputy Group Executive of Finance & Accounting HQ3/2004
    
    
    Director4/2004
    
    
    Group Executive of Global Procurement HQ3/2007
    
    
    Managing Director*4/2007
    
    
    Group Executive of Finance & Accounting HQ*Shigeyuki Matsumoto
    
    Managing Director
    
    
    4/1977
    
    
    Entered the Company(Nov. 15, 1950)
    
    (Group Executive of Device
    
    
    1/2002
    
    
    Group Executive of Device Technology Development HQ*Technology Development HQ)
    
    
    3/2004
    
    
    Director3/2007
    
    
    Managing Director*Katsuichi Shimizu
    
    Managing Director
    
    
    4/1970
    
    
    Entered the Company(Nov. 13, 1946)
    
    (Chief Executive of Inkjet
Products HQ)
    
    
    4/2001
    
    
    Deputy Chief Executive of Office Imaging Products HQ3/2003
    
    
    Director4/2003
    
    
    Chief Executive of Inkjet Products HQ*3/2008
    
    
    Managing Director*
 37




---



##### Table of Contents



Name
    
    Position
    
    Date of
    
    Business experience(Date of birth)
    
    (Group executive/function)
    
    commencement
    
    (*current position/function)Ryoichi Bamba
    
    Managing Director
    
    
    4/1972
    
    
    Entered the Company(Nov. 25, 1946)
    
    
    
    
    4/1998
    
    
    Senior Vice President of Canon U.S.A., Inc.2/2003
    
    
    Executive Vice President of Canon U.S.A., Inc.3/2003
    
    
    Director2/2008
    
    
    President of Canon Europa N.V.*President of Canon Europe Ltd.*3/2008
    
    
    Managing Director*Toshio Honma
    
    Managing Director
    
    
    4/1972
    
    
    Entered the Company(Mar. 10, 1949)
    
    (Chief Executive of L Printer Products HQ)
    
    
    4/2001
    
    
    Deputy Chief Executive of i Printer Products HQ3/2003
    
    
    Director4/2003
    
    
    Group Executive of Business Promotion HQ7/2003
    
    
    Group Executive of L Printer Business Promotion HQ1/2007
    
    
    Chief Executive of L Printer Products HQ*3/2008
    
    
    Managing Director*Masaki Nakaoka
    
    Managing Director
    
    
    4/1975
    
    
    Entered the Company(Jan. 3, 1950)
    
    (Chief Executive of Office Imaging
    
    
    1/1997
    
    
    Senior General Manager of Office Imaging Products
Development Center 1Products HQ)
    
    
    4/1999
    
    
    Group Executive of Office Imaging Products Group 14/2001
    
    
    Deputy Chief Executive of Office Imaging Products HQ3/2004
    
    
    Director4/2005
    
    
    Chief Executive of Office Imaging Products HQ*3/2008
    
    
    Managing Director*Haruhisa Honda
    
    Managing Director
    
    
    4/1974
    
    
    Entered the Company(Oct. 14, 1948)
    
    (Group Executive of Production
    
    
    4/1995
    
    
    Senior General Manager of Cartridge Development CenterEngineering HQ)
    
    
    3/2004
    
    
    Director4/2004
    
    
    Chief Executive of Chemical Products Operations3/2007
    
    
    Group Executive of Production Engineering HQ*3/2008
    
    
    Managing Director*Toshiyuki Komatsu
    
    Director
    
    
    4/1972
    
    
    Entered the Company(Jan. 19, 1950)
    
    (Deputy Group Executive of
    
    
    1/1998
    
    
    Senior General Manager of Canon Research CenterCorporate Planning Development HQ)
    
    
    1/2000
    
    
    Deputy Group Executive of Core Technology Development HQ3/2004
    
    
    Director*4/2004
    
    
    Group Executive of Leading-Edge Technology Development
HQ7/2005
    
    
    Group Executive of Core Technology Development HQ1/2008
    
    
    Group Executive of Technology Frontier Research HQ4/2008
    
    
    Deputy Group Executive of Corporate Planning
Development HQ*Tetsuro Tahara
    
    Director
    
    
    4/1971
    
    
    Entered the Company(Jan. 31, 1949)
    
    (Group Executive of GlobalManufacturing & Logistics HQ)
    
    
    4/1999
    
    
    Senior General Manager of Office Imaging ProductsProduction Management Center4/2002
    
    
    Deputy Chief Executive of Office Imaging Products HQ4/2003
    
    
    President of Canon (Suzhou) Inc.3/2006
    
    
    Director*4/2006
    
    
    Group Executive of Global Manufacturing & Logistics HQ*Seijiro Sekine
    
    Director
    
    
    4/1972
    
    
    Entered the Company(Oct. 20, 1948)
    
    (Group Executive of Information &
    
    
    1/2001
    
    
    Deputy Group Executive of Information & Communication
Systems HQCommunication Systems HQ)
    
    
    10/2004
    
    
    Group Executive of Logistics HQ3/2006
    
    
    Director*4/2006
    
    
    Group Executive of Information & Communication Systems HQ*Deputy Group Executive of Global Manufacturing &
Logistics HQShunji Onda
    
    Director
    
    
    4/1972
    
    
    Entered Canon Sales Co., Inc. (renamed Canon Marketing
Japan Inc.)(Mar. 13, 1950)
    
    (Group Executive of Global Procurement HQ)
    
    
    7/1980
    
    
    Entered the Company4/2004
    
    
    Senior General Manager of Optical Products Business
Administration Center3/2006
    
    
    Director*4/2006
    
    
    Deputy Group Executive of Finance & Accounting HQ4/2007
    
    
    Group Executive of Global Procurement HQ*Kazunori Fukuma
    
    Director
    
    
    4/1972
    
    
    Entered Toshiba Corporation(Feb. 24, 1950)
    
    
    
    
    6/2005
    
    
    Executive Officer & Corporate Vice President of Toshiba
Corporation1/2006
    
    
    President of SED Inc.*1/2007
    
    
    Entered the Company3/2007
    
    
    Director*Hideki Ozawa
    
    Director
    
    
    4/1973
    
    
    Entered Canon Sales Co., Inc. (renamed Canon Marketing
Japan Inc.)(Apr. 28, 1950)
    
    
    
    
    7/1980
    
    
    Entered the Company4/2004
    
    
    President of Canon Singapore Pte. Ltd.4/2005
    
    
    President of Canon (China) Co., Ltd.*3/2007
    
    
    Director*Masaya Maeda
    
    Director
    
    
    4/1975
    
    
    Entered the Company(Oct. 17, 1952)
    
    (Chief Executive of Image
    
    
    1/2002
    
    
    Senior General Manager of Digital Consumer Products Development CenterCommunication Products HQ)
    
    
    7/2003
    
    
    Deputy Group Executive of Digital Imaging Business Group1/2006
    
    
    Group Executive of Digital Imaging Business Group3/2007
    
    
    Director*4/2007
    
    
    Chief Executive of Image Communications Products HQ*
 38




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##### Table of Contents



Name
    
    Position
    
    Date of
    
    Business experience(Date of birth)
    
    (Group executive/function)
    
    commencement
    
    (*current position/function)Keijiro Yamazaki
    
    Corporate Auditor
    
    
    4/1971
    
    
    Entered the Company(Oct. 14, 1948)
    
    
    
    
    1/2000
    
    
    Deputy Group Executive of Human Resource Management &
Organization HQ3/2004
    
    
    Director4/2004
    
    
    Group Executive of Information & Communications Systems HQ3/2006
    
    
    Group Executive of Human Resource Management &
Organization HQ4/2007
    
    
    Group Executive of General Affairs HQ3/2008
    
    
    Corporate Auditor *Kunihiro Nagata
    
    Corporate Auditor
    
    
    4/1970
    
    
    Entered the Company(Mar.16, 1948)
    
    
    
    
    1/2003
    
    
    Deputy Group Executive of Corporate
Planning Development HQ3/2004
    
    
    Corporate Auditor *Tadashi Ohe
    
    Corporate Auditor
    
    
    4/1969
    
    
    Registration as a lawyer*(May 20, 1944)
    
    
    
    
    4/1989
    
    
    Instructor of Judicial Research and Training Institute3/1994
    
    
    Corporate Auditor*Yoshinobu Shimizu
    
    Corporate Auditor
    
    
    3/1973
    
    
    Registered as Certified Public Accountant*(Oct. 26, 1944)
    
    
    
    
    6/1990
    
    
    Representative Partner of Showa Ota & Co.5/2002
    
    
    Deputy Chief Executive Officer of Century Ota Showa & Co.(renamed Ernst & Young ShinNihon LLC)3/2006
    
    
    Corporate Auditor*Minoru Shishikura
    
    Corporate Auditor
    
    
    4/1976
    
    
    Entered The Dai-Ichi Mutual Life Insurance Co.(Sept. 13, 1953)
    
    
    
    
    4/1998
    
    
    General Manager of Metropolitan Corporate Loan Dept. ofThe Dai-Ichi Mutual Life Insurance Co.4/2000
    
    
    General Manager of Loan Department of The Dai-Ichi Mutual
Life Insurance Co.4/2002
    
    
    General Manager of Credit Department of The Dai-Ichi Mutual LifeInsurance Co.3/2006
    
    
    Corporate Auditor*
 Term
     Board of Directors and Corporate Auditors
         39




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##### Table of Contents



Executive Officer System
   PositionName
    
    (Group executive/function)Sachio Kageyama
    
    President of Canon Vietnam Co., Ltd.Masahiro Haga
    
    Executive Vice President of Canon U.S.A., Inc.Kengo Uramoto
    
    Deputy Group Executive of Human Resource Management & Organization HQMasanori Yamada
    
    Deputy Chief Executive of Office Imaging Products HQAkio Noguchi
    
    Deputy Chief Executive of Peripheral Products HQHiroyuki Suematsu
    
    Chief Executive of Chemical Products HQYasuhiro Tani
    
    Group Executive of Digital Platform Technology Development HQSeymour Liebman
    
    Executive Vice President of Canon U.S.A., Inc.Masato Okada
    
    Deputy Chief Executive of Image Communication Products HQKazuhiro Akiyama
    
    Deputy Group Executive of General Affairs HQ
 
 B. Compensation
     The Stock Option Plan Approved on March 28, 2008
                   40




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##### Table of Contents



= Exercise
Price before adjustment ×
    
    1Ratio of Share Splitting or Share Consolidation
   Number of Issued and Outstanding Shares +
    
    Number of Newly Issued Shares × Payment amount per ShareMarket PriceNumber of Issued and Outstanding Shares + Number of Newly Issued Shares
      Kaisha Keisan Kisoku
            41




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##### Table of Contents



The Stock Option Plan Approved on March 27, 2009
                      = Exercise
Price before adjustment ×
    
    1Ratio of Share Splitting or Share Consolidation
 42




---



##### Table of Contents



Number of Issued and Outstanding Shares +
    
    Number of Newly Issued Shares × Payment amount per ShareMarket PriceNumber of Issued and Outstanding Shares + Number of Newly Issued Shares
      Kaisha Keisan Kisoku
                 
 C. Board practices
  43




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##### Table of Contents



D. Employees
  Total
    
    
    Japan
    
    
    Americas
    
    
    Europe
    
    
    OtherDecember 31, 2008Business machines
    
    
    110,274
    
    
    
    39,507
    
    
    
    8,324
    
    
    
    10,213
    
    
    
    52,230Cameras
    
    
    25,732
    
    
    
    10,964
    
    
    
    1,384
    
    
    
    1,555
    
    
    
    11,829Optical and other products
    
    
    25,041
    
    
    
    17,100
    
    
    
    1,404
    
    
    
    967
    
    
    
    5,570Corporate
    
    
    5,933
    
    
    
    4,874
    
    
    
    
    
    
    
    
    
    
    
    1,059Total
    
    
    166,980
    
    
    
    72,445
    
    
    
    11,112
    
    
    
    12,735
    
    
    
    70,688December 31, 2007Business machines
    
    
    87,334
    
    
    
    32,575
    
    
    
    7,633
    
    
    
    9,993
    
    
    
    37,133Cameras
    
    
    19,170
    
    
    
    5,893
    
    
    
    1,755
    
    
    
    1,490
    
    
    
    10,032Optical and other products
    
    
    19,208
    
    
    
    11,412
    
    
    
    1,350
    
    
    
    802
    
    
    
    5,644Corporate
    
    
    5,640
    
    
    
    5,347
    
    
    
    
    
    
    
    
    
    
    
    293Total
    
    
    131,352
    
    
    
    55,227
    
    
    
    10,738
    
    
    
    12,285
    
    
    
    53,102December 31, 2006Business machines
    
    
    79,293
    
    
    
    30,046
    
    
    
    7,409
    
    
    
    9,202
    
    
    
    32,636Cameras
    
    
    16,841
    
    
    
    5,422
    
    
    
    1,652
    
    
    
    1,381
    
    
    
    8,386Optical and other products
    
    
    16,494
    
    
    
    9,768
    
    
    
    1,164
    
    
    
    703
    
    
    
    4,859Corporate
    
    
    5,871
    
    
    
    5,517
    
    
    
    44
    
    
    
    
    
    
    
    310Total
    
    
    118,499
    
    
    
    50,753
    
    
    
    10,269
    
    
    
    11,286
    
    
    
    46,191
    44




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##### Table of Contents



E. Share ownership
  Name
    
    Position
    
    Number of sharesFujio Mitarai
    
    Chairman & CEO
    
    
    94,600Tsuneji Uchida
    
    President & COO
    
    
    13,500Toshizo Tanaka
    
    Executive Vice President & CFO
    
    
    18,052Toshiaki Ikoma
    
    Executive Vice President & CTO
    
    
    3,000Nobuyoshi Tanaka
    
    Senior Managing Director
    
    
    21,732Junji Ichikawa
    
    Senior Managing Director
    
    
    21,985Akiyoshi Moroe
    
    Senior Managing Director
    
    
    18,232Kunio Watanabe
    
    Senior Managing Director
    
    
    15,652Yoroku Adachi
    
    Senior Managing Director
    
    
    14,442Yasuo Mitsuhashi
    
    Senior Managing Director
    
    
    11,377Tomonori Iwashita
    
    Managing Director
    
    
    9,150Masahiro Osawa
    
    Managing Director
    
    
    7,142Shigeyuki Matsumoto
    
    Managing Director
    
    
    6,352Katsuichi Shimizu
    
    Managing Director
    
    
    10,937Ryoichi Bamba
    
    Managing Director
    
    
    7,900Toshio Honma
    
    Managing Director
    
    
    12,092Masaki Nakaoka
    
    Managing Director
    
    
    4,500Haruhisa Honda
    
    Managing Director
    
    
    8,689Toshiyuki Komatsu
    
    Director
    
    
    5,500Tetsuro Tahara
    
    Director
    
    
    4,752Seijiro Sekine
    
    Director
    
    
    6,990Shunji Onda
    
    Director
    
    
    6,902Kazunori Fukuma
    
    Director
    
    
    2,400Hideki Ozawa
    
    Director
    
    
    3,419Masaya Maeda
    
    Director
    
    
    2,000Keijiro Yamazaki
    
    Corporate Auditor
    
    
    8,650Kunihiro Nagata
    
    Corporate Auditor
    
    
    2,650Tadashi Ohe
    
    Corporate Auditor
    
    
    26,900Yoshinobu Shimizu
    
    Corporate Auditor
    
    
    3,400Minoru Shishikura
    
    Corporate Auditor
    
    
    2,000Total
    
    
    374,897
   45




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##### Table of Contents



Item 7. Major Shareholders and Related Party Transactions
 
 A. Major shareholders
  Name of major shareholder
    
    Shares owned
    
    
    PercentageNumber of shares owned
/Number of shares issuedThe Dai-Ichi Mutual Life Insurance Co.
    
    
    93,312,600
    
    
    
    7.0
    %Moxley & Co.
    
    
    64,552,391
    
    
    
    4.8
    %Japan Trustee Services Bank, Ltd. (Trust Account)
    
    
    57,055,500
    
    
    
    4.3
    %Japan Trustee Services Bank, Ltd. (Trust Account 4G)
    
    
    53,469,300
    
    
    
    4.0
    %The Master Trust Bank of Japan, Ltd. (Trust Account)
    
    
    47,213,400
    
    
    
    3.5
    %JPMorgan Chase & Co. 380055
    
    
    30,220,800
    
    
    
    2.3
    %State Street Bank and Trust Company
    
    
    25,969,814
    
    
    
    1.9
    %Mizuho Corporate Bank, Ltd.
    
    
    25,919,736
    
    
    
    1.9
    %Sompo Japan Insurance Inc.
    
    
    22,910,347
    
    
    
    1.7
    %The Chase Manhattan Bank, N.A. London S.L. Omnibus Account
    
    
    21,615,302
    
    
    
    1.6
    %
 Notes:1: Moxley & Co. is a nominee of JPMorgan Chase Bank, which is the depositary of Canons ADRs
(American Depositary Receipts.)2: Apart from
the above shares, Mizuho Corporate Bank, Ltd. held 7,704,000 shares contributed
to a trust fund for its retirement and severance plans.3: Apart from
the above shares, the Company owns 99,275,245 shares (7.4% of total issued
shares) of treasury stock.4: Mizuho Corporate Bank, Ltd. and its three affiliated companies listed below submitted a report
on large share holdings to the Kanto Local Finance Bureau on July 23, 2007 in their joint names and
reported that they owned 71,888,936 shares (5.4%) of the Company as of July 13, 2007 in total
as detailed below. However, the Company has not confirmed the status of these holdings as of
December 31, 2008. As of July 13, 2007Number of shares held
    
    
    Number of shares held /Number of shares issuedMizuho Corporate Bank, Ltd.
    
    
    36,123,736
    
    
    
    2.7%Mizuho Bank, Ltd.
    
    
    8,853,000
    
    
    
    0.7%Mizuho Trust & Banking Co., Ltd.
    
    
    24,149,600
    
    
    
    1.8%Dai-Ichi Kangyo Asset Management Co., Ltd.
    
    
    2,762,600
    
    
    
    0.2%(Subsequently renamed as Mizuho Asset Management Co., Ltd.)total
    
    
    71,888,936
    
    
    
    5.4%
    
 B. Related party transactions
    
 C. Interests of experts and counsel
  46




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##### Table of Contents



Item 8. Financial Information
 
 A. Consolidated financial statements and other financial information
 
 Consolidated financial statements
   
 Legal proceedings
  
    
    In December 2002, the European Commission instituted an investigation
into the printer and supply market. Canon received a questionnaire in
connection with the investigation of the printer and supply market in
January 2003 and Canon has submitted its response. The investigation
is yet to be closed.
    
    In January 2003, the Düsseldorf District Court in Germany issued
rulings in Canons favor in two patent infringement actions filed by
Canon against Pelikan Hardcopy Deutschland GmbH and Pelikan Hardcopy
European Logistics & Services GmbH (collectively, Pelikan Hardcopy).
Pelikan Hardcopy has appealed against the decision. In November 2003,
the Düsseldorf District Court in Germany issued a ruling in Canons
favor in another patent infringement action filed by Canon against
Pelikan Hardcopy. Pelikan Hardcopy has appealed against the decision.
The Düsseldorf High Court issued rulings in Canons favor in two of
the three appeals by Pelikan Hardcopy. The rulings have become finally
binding, and now the procedures for enforcing the ruling are underway.
Canon withdrew the complaint regarding the remaining case based on
efficiency considerations. On November 13, 2008, Pelikan Hardcopy (now
named Initio GmbH) filed a nullity suit against one of Canons patents
subject of the above enforcement procedures.
    
    In October 2003, a lawsuit was filed by a former employee against the
Company at the Tokyo District Court in Japan. The lawsuit alleges that
the former employee is entitled to ¥45,872 million as reasonable
remuneration for an invention related to certain technology used by
the Company, and the former employee has sued for a partial payment of
¥1,000 million and interest thereon. On January 30, 2007, the Tokyo
District Court of Japan ordered the Company to pay the former employee
approximately ¥33.5 million and interest thereon. On the same day, the
Company appealed the decision. On February 26, 2009, the Intellectual
Property High Court of Japan issued a judgment in the appellate court
review and ordered the Company to pay the former employee
approximately ¥69.6 million, consisting of reasonable remuneration of
approximately ¥56.3 million and interest thereon. On March 12, 2009,
the Company appealed the decision to the Supreme Court.
    
    In Germany, Verwertungsgesellschaft Wort (VG Wort), a collecting
agency representing certain copyright holders, has filed a series of
lawsuits seeking to impose copyright levies upon digital products such
as PCs and printers, that allegedly enable the reproduction of
copyrighted materials, against the companies importing and
distributing these digital products. In May 2004, VG Wort filed a
civil lawsuit against Hewlett-Packard GmbH seeking levies on
multi-function printers sold in Germany during the period from 1997
through 2001. This is an industry test case under which
Hewlett-Packard GmbH represents other companies sharing common
interests, and Canon has undertaken to be bound by the final decision
of this court case. In 2008, the Federal Supreme Court delivered its
short judgment in favor of VG Wort, whereby the court decided that,
for MFPs sold during the period from 1997 through 2001, the same full
tariff as applicable to photocopiers (EUR 38.35 to EUR 613.56 per
unit, depending on the printing speed and color printing capability)
should be applied. Hewlett-Packard GmbH filed a claim with the Federal
Constitutional Court challenging the judgment of the Federal Supreme
Court in August 2008. For the multi-function printers sold during the
period from 2002 through 2007, VG Wort made a request for arbitration
with Canon before an arbitration court in January 2007, and the
arbitration court delivered their settlement proposal in December
2008. However, VG Wort rejected such settlement proposal in January
2009. VG Wort is now able to transfer this case to a court of appeals.
With regard to single-function printers, VG Wort filed a separate
lawsuit in January 2006 against Canon seeking payment of copyright
levies, and the court of first instance in Düsseldorf ruled in favor
of the claim by VG Wort in November 2006. Canon lodged an appeal
against such decision in December 2006 before the court of appeals in
Düsseldorf. Following a decision by the same court of appeals in
Düsseldorf on January 23, 2007 in relation to a similar court case
seeking copyright levies on single-function printers of Epson
Deutschland GmbH, Xerox GmbH and Kyocera Mita Deutschland GmbH,
whereby the court rejected such alleged levies, in its judgment of
November 13, 2007, the court of appeals rejected VG Worts claim
against Canon. VG Wort appealed further against said decision of the
court of appeals before the Federal Supreme Court. In December 2007,
for a similar Hewlett-Packard GmbH case relating to single-function
printers, the Federal Supreme Court delivered its judgment in favor of
Hewlett-Packard GmbH and dismissed VG Worts claim. VG Wort has
already filed a constitutional complaint with the Federal
Constitutional Court against said judgment of the Federal Supreme
Court. Canon, other companies and the industry associations have
expressed opposition to such extension of the levy scope. Based on
industry opposition to the extension of levies to digital products,
Canons assessments of the final conclusion of these court cases
including the amount of levies to be imposed and the associated
financial impact on Canon remain uncertain. In 2007, an amendment of
German copyright law was carried out, and a new law has been effective
from January 1, 2008 for both multi-function printers and
single-function printers. The new law sets forth that the scope and
tariff of copyright levies will be agreed between industry and the
collecting society. Industry and the collecting society, based on the
requirement under the new law, reached an agreement in December 2008.
This agreement is applicable retroactively from January 1, 2008 and
will remain effective through end of 2010. Accordingly, there is no
longer any uncertainty with respect to levies for sales of printers on
and after January 1, 2008.
    
    In April 2004, Canon filed two patent infringement actions against
RecycleAssist Co., Ltd. (Recycle Assist) before the Tokyo District
Court. In December 2004, the Tokyo District Court issued rulings in
Recycle Assists favor in the two actions. In December 2004, Canon
appealed against the decisions of the two actions. In January 2006,
the Intellectual Property High Court issued a ruling in favor of Canon
in one of the two appeal cases. In February 2006, Recycle Assist
further appealed against this ruling before the Supreme Court. In
November 2007, the Supreme Court rendered a judgment in favor of
Canon, and execution procedures were completed in March 2008. Canon
withdrew the remaining appeal case based on efficiency considerations.
 47




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##### Table of Contents




    
    In April 2005, a lawsuit was filed by Nano-Proprietary Inc., currently
Applied Nanotech Holdings, Inc., (NPI) against the Company and Canon
U.S.A., Inc. in the United States District Court of Texas alleging
that SED Inc., a joint venture company established by the Company and
Toshiba Corporation, was not regarded as a subsidiary under the
Patent License Agreement between the Company and NPI and the extension
of the license to SED Inc. constituted a breach of the agreement. NPI
also alleged that Canon committed fraud in executing such agreement,
and requested rescission of the
agreement and compensatory damages. In November 2006, the Court denied Canons motion for a
summary judgment that SED Inc. was a subsidiary of the Company. In January 2007, the Company
purchased all the shares of SED Inc. owned by Toshiba Corporation, making SED Inc. a 100% owned
subsidiary of the Company. However, on February 22, 2007, the Court issued a summary judgment
stating that SED Inc. (before the above stock purchase) was not a subsidiary of the Company,
that the Company had materially breached the patent license agreement and that NPI was allowed
to terminate that agreement. Thereafter, a trial was held from April 30 to May 3, 2007, in
Austin, Texas. NPIs fraud claims against Canon were withdrawn by NPI and the jury returned a
verdict that NPI had sustained no damages. All claims against Canon U.S.A., Inc. were also
withdrawn by NPI. On May 15, 2007, Canon filed a notice of appeal to the United States Court of
Appeals for the Fifth Circuit (Appeals Court), appealing the District Courts prior ruling
that Canon had breached the patent license agreement and allowing NPI to terminate that
agreement. On June 4, 2007, NPI also filed a notice of appeal, appealing the District Courts
determination that NPI had sustained no damages. On July 25, 2008, the Appeals Court reversed
the District Courts judgment and found that termination of the patent license agreement was
ineffective and that the 100% owned SED Inc. is a subsidiary of Canon. The Appeals Court also
affirmed the District Courts judgment denying damages to NPI. NPI petitioned for rehearing of
the judgment, but the Appeals Court denied the petition. Since NPI did not appeal to the Supreme
Court within the required time limit, the Fifth Circuits judgment is definitive and conclusive
in favor of Canon.
 
 Dividend policy
      
 B. Significant changes
  48




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##### Table of Contents



Item 9. The Offer and Listing
 
 A. Offer and listing details
 
 Trading in domestic markets
   TSE
    
    TOPIX
    
    Nikkei Stock Average(Canon Inc.)
    
    (Reference data)
    
    (Reference data)(Japanese yen)
    
    (Points)
    
    (Japanese yen)Period
    
    High
    
    Low
    
    High
    
    Low
    
    High
    
    Low2004 Year
    
    ¥
    3,880
    
    
    ¥
    3,273
    
    
    
    1,225.97
    
    
    
    1,017.84
    
    
    ¥
    12,195.66
    
    
    ¥
    10,299.432005 Year
    
    
    4,780
    
    
    
    3,460
    
    
    
    1,673.18
    
    
    
    1,104.30
    
    
    
    16,445.56
    
    
    
    10,770.582006 Year
    
    
    6,780
    
    
    
    4,567
    
    
    
    1,783.72
    
    
    
    1,439.00
    
    
    
    17,563.37
    
    
    
    14,045.532007 1(st) quarter
    
    
    6,750
    
    
    
    6,020
    
    
    
    1,823.89
    
    
    
    1,650.82
    
    
    
    18,300.39
    
    
    
    16,532.912(nd) quarter
    
    
    7,450
    
    
    
    6,210
    
    
    
    1,793.61
    
    
    
    1,682.49
    
    
    
    18,297.00
    
    
    
    16,999.053(rd) quarter
    
    
    7,330
    
    
    
    5,340
    
    
    
    1,796.89
    
    
    
    1,479.82
    
    
    
    18,295.27
    
    
    
    15,262.104(th) quarter
    
    
    6,500
    
    
    
    5,190
    
    
    
    1,679.71
    
    
    
    1,417.47
    
    
    
    17,488.97
    
    
    
    14,669.852007 Year
    
    
    7,450
    
    
    
    5,190
    
    
    
    1,823.89
    
    
    
    1,417.47
    
    
    
    18,300.39
    
    
    
    14,669.852008 1(st) quarter
    
    
    5,100
    
    
    
    4,100
    
    
    
    1,461.31
    
    
    
    1,139.62
    
    
    
    15,156.66
    
    
    
    11,691.002(nd) quarter
    
    
    5,820
    
    
    
    4,560
    
    
    
    1,449.14
    
    
    
    1,214.92
    
    
    
    14,601.27
    
    
    
    12,521.843(rd) quarter
    
    
    5,520
    
    
    
    3,770
    
    
    
    1,334.52
    
    
    
    1,069.69
    
    
    
    13,603.31
    
    
    
    11,160.834(th) quarter
    
    
    4,110
    
    
    
    2,215
    
    
    
    1,107.68
    
    
    
    721.53
    
    
    
    11,456.64
    
    
    
    6,994.902008 Year
    
    
    5,820
    
    
    
    2,215
    
    
    
    1,461.31
    
    
    
    721.53
    
    
    
    15,156.66
    
    
    
    6,994.90
 TSE
    
    TOPIX
    
    Nikkei Stock Average(Canon Inc.)
    
    (Reference data)
    
    (Reference data)(Japanese yen)
    
    (Points)
    
    (Japanese yen)Period
    
    High
    
    Low
    
    High
    
    Low
    
    High
    
    Low2008 July
    
    ¥
    5,520
    
    
    ¥
    4,830
    
    
    
    1,334.52
    
    
    
    1,240.91
    
    
    ¥
    13,603.31
    
    
    ¥
    12,671.34August
    
    
    5,390
    
    
    
    4,770
    
    
    
    1,296.07
    
    
    
    1,212.95
    
    
    
    13,468.81
    
    
    
    12,631.94September
    
    
    4,880
    
    
    
    3,770
    
    
    
    1,242.10
    
    
    
    1,069.69
    
    
    
    12,940.55
    
    
    
    11,160.83October
    
    
    4,110
    
    
    
    2,215
    
    
    
    1,107.68
    
    
    
    721.53
    
    
    
    11,456.64
    
    
    
    6,994.90November
    
    
    3,990
    
    
    
    2,480
    
    
    
    966.91
    
    
    
    753.91
    
    
    
    9,521.24
    
    
    
    7,406.18December
    
    
    2,865
    
    
    
    2,510
    
    
    
    859.66
    
    
    
    782.16
    
    
    
    8,859.56
    
    
    
    7,849.842009 January
    
    
    3,370
    
    
    
    2,435
    
    
    
    896.21
    
    
    
    767.82
    
    
    
    9,325.35
    
    
    
    7,671.04February
    
    
    2,690
    
    
    
    2,230
    
    
    
    803.60
    
    
    
    717.85
    
    
    
    8,257.71
    
    
    
    7,155.16
 
 Note: Canon made a three-for-two stock split on July 1, 2006. The information above has been
adjusted to reflect the stock split. 49




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##### Table of Contents



Trading in foreign markets
    NYSE(Canon Inc.)(U.S. dollars)Period
    
    High
    
    Low2004 Year
    
    $
    36.260
    
    
    $
    29.6272005 Year
    
    
    40.280
    
    
    
    32.6402006 Year
    
    
    57.320
    
    
    
    39.6302007 1(st) quarter
    
    
    56.990
    
    
    
    50.7202(nd) quarter
    
    
    60.160
    
    
    
    53.0203(rd) quarter
    
    
    59.390
    
    
    
    48.3504(th) quarter
    
    
    55.990
    
    
    
    45.6802007 Year
    
    
    60.160
    
    
    
    45.6802008 1(st) quarter
    
    
    46.980
    
    
    
    38.4402(nd) quarter
    
    
    54.990
    
    
    
    44.9003(rd) quarter
    
    
    51.000
    
    
    
    35.5104(th) quarter
    
    
    39.300
    
    
    
    24.0402008 Year
    
    
    54.990
    
    
    
    24.040
 (Canon Inc.)(U.S. dollars)Period
    
    High
    
    Low2008 July
    
    $
    51.000
    
    
    $
    45.340August
    
    
    48.760
    
    
    
    44.080September
    
    
    44.840
    
    
    
    35.510October
    
    
    38.370
    
    
    
    24.040November
    
    
    39.300
    
    
    
    25.960December
    
    
    31.750
    
    
    
    26.5702009 January
    
    
    35.250
    
    
    
    26.840February
    
    
    28.930
    
    
    
    23.730
 
 Note: Canon made a three-for-two stock split on July 1, 2006. The information above has been
adjusted to reflect the stock split.  
 B. Plan of distribution
  
 C. Markets
  
 D. Selling shareholders
  
 E. Dilution
  
 F. Expenses of the issue
  50




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##### Table of Contents



Item 10. Additional Information
 
 A. Share capital
  
 B. Memorandum and articles of association
 Objects and Purposes in the Companys Articles of Incorporation
  (1)
    
    Manufacture and sale of optical machineries and instruments of various kinds.(2)
    
    Manufacture and sale of acoustic, electrical and electronic machineries and instruments of various kinds.(3)
    
    Manufacture and sale of precision machineries and instruments of various kinds.(4)
    
    Manufacture and sale of medical machineries and instruments of various kinds.(5)
    
    Manufacture and sale of general machineries, instruments and equipments of various kinds.(6)
    
    Manufacture and sale of parts, materials, etc. relative to the products mentioned in each of the preceding items.(7)
    
    Production and sale of software products.(8)
    
    Manufacture and sale of pharmaceutical products.(9)
    
    Telecommunications business, and information service business such as information processing service business,
information providing service business, etc.(10)
    
    Contracting for telecommunications works, electrical works and machinery and equipment installation works.(11)
    
    Sale, purchase and leasing of real properties, contracting for construction works, design of buildings and
supervision of construction works.(12)
    
    Manpower providing business, property leasing business and travel business.(13)
    
    Business relative to investigation, analysis of the environment and purification process of soil, water, etc.(14)
    
    Any and all business relevant to each of the preceding items.
 Provisions Regarding Directors
 kabushiki kaisha
     Holding of Shares by Foreign Investors
  Rights of Shareholders
  General
   51




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Distributions of Surplus
    Restriction on Distributions of Surplus
                renketsu haito kisei tekiyo kaisha
  52




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##### Table of Contents



Stock Splits
   Japanese Unit Share System
  Transferability of Shares Representing Less than One Unit
  Right of a Holder of Shares Representing Less than One Unit to Require the Company to Purchase Its
Shares
  Right of a Holder of Shares Representing Less than One Unit to Purchase from the Company its Shares
up to a Whole Unit
  Voting Rights of a Holder of Shares Representing Less than One Unit
    
    
    to receive annual and interim dividends,
    
    to receive cash or other assets in case of consolidation or split of shares, exchange or transfer of shares
or corporate merger,
    
    to be allotted rights to subscribe for free for new shares when such rights are granted to shareholders, and
    
    to participate in any distribution of surplus assets upon liquidation.
 Ordinary and Extraordinary General Meeting of Shareholders
  Voting Rights
  53




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##### Table of Contents




    
    a reduction of stated capital,
    
    amendment of the Articles of Incorporation (except amendments which the Board of Directors are
authorized to make under the Corporation Law of Japan as described in Stock Splits and
Japanese Unit Share System above),
    
    the removal of a director or corporate auditor,
    
    establishment of a 100% parent-subsidiary relationship by way of share exchange or share transfer,
    
    a dissolution, merger or consolidation,
    
    a corporate separation,
    
    the transfer of the whole or an important part of the Companys business,
    
    the taking over of the whole of the business of any other corporation,
    
    any issuance of new shares at a specially favorable price, stock acquisition rights (shinkabu
yoyakuken) with specially favorable conditions or bonds with stock acquisition rights (shinkabu
yoyakuken-tsuki shasai) with specially favorable conditions to persons other than shareholders,
    
    release of part of Directors or Corporate Auditors liabilities to the Company,
    
    distribution of Surplus in kind with respect to which shareholders are not granted the right to
require the Company to make such distribution in cash instead of in kind,
    
    purchase of shares by the Company from a specific shareholder other than its subsidiaries,
    
    consolidation of shares, and
    
    discharge of a portion of liabilities of Directors, Corporate Auditors or independent auditors
that are owed to the Company.
   Subscription Rights
  Stock Acquisition Rights
  Liquidation Rights
  Liability to Further Calls or Assessments
  Share Registrar
  Record Date
    54




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##### Table of Contents



Repurchase by the Company of Shares
    
 C. Material contracts
  
 D. Exchange controls
               55




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##### Table of Contents



E. Taxation
       
    
    certain financial institutions;
    
    insurance companies;
    
    dealers and traders in securities or foreign currencies;
    
    persons holding Canon shares or ADSs as part of a hedge, straddle, conversion, other integrated
transaction or other similar transaction;
    
    persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
    
    partnerships or other entities classified as partnerships for U.S. federal income tax purposes;
    
    persons liable for the alternative minimum tax;
    
    tax-exempt organizations;
    
    persons holding Canon shares or ADSs that own or are deemed to own 10% or more of any class of Canon stock;
    
    persons who acquired Canon shares or ADSs pursuant to the exercise of any employee stock option or
otherwise as compensation; or
    
    persons holding shares in connection with trade or business conducted outside of the United States.
   
    
    a citizen or resident of the United States;
    
    a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the
United States or any political subdivision thereof; or
    
    an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
  56




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Taxation of Distributions
    Sale and Other Disposition of Canon Shares or ADSs
  Passive Foreign Investment Company Rules
    Information Reporting and Backup Withholding
   
 F. Dividends and paying agents
  
 G. Statement by experts
  57




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##### Table of Contents



H. Documents on display
  
 
  
 
 I. Subsidiary information
  
 Item 11. Quantitative and Qualitative Disclosures about Market Risk
 
 Market risk exposures
  
 Equity price risk
    2008
    
    
    2007Cost
    
    
    Fair value
    
    
    Cost
    
    
    Fair value(Millions of yen)Due within one year
    
    ¥
    134
    
    
    ¥
    150
    
    
    ¥
    51
    
    
    ¥
    51Due after one year through five years
    
    
    3,542
    
    
    
    3,426
    
    
    
    3,430
    
    
    
    3,638Due after five years through ten years
    
    
    848
    
    
    
    811
    
    
    
    3,822
    
    
    
    4,726Equity securities
    
    
    10,522
    
    
    
    12,218
    
    
    
    12,666
    
    
    
    22,316¥
    15,046
    
    
    ¥
    16,605
    
    
    ¥
    19,969
    
    
    ¥
    30,731
  2008
    
    
    2007Cost
    
    
    Fair value
    
    
    Cost
    
    
    Fair value(Millions of yen)Due within one year
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    10,115
    
    
    ¥
    10,115¥
    
    
    
    ¥
    
    
    
    ¥
    10,115
    
    
    ¥
    10,115
 58




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##### Table of Contents



Foreign currency exchange rate and interest rate risk
    Millions of yenU.S.$
    
    

Euro
    
    
    Others
    
    
    TotalForwards to sell foreign currencies:Contract amounts
    
    ¥
    179,239
    
    
    ¥
    152,423
    
    
    ¥
    19,297
    
    
    ¥
    350,959Estimated fair value
    
    
    8,391
    
    
    
    (1,390
    )
    
    
    710
    
    
    
    7,711Forwards to buy foreign currencies:Contract amounts
    
    ¥
    24,518
    
    
    ¥
    1,000
    
    
    ¥
    9,729
    
    
    ¥
    35,247Estimated fair value
    
    
    (9
    )
    
    
    7
    
    
    
    2,129
    
    
    
    2,127
     
 Item 12. Description of Securities Other than Equity Securities
  59




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PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies
  
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
       
 Item 15. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
      Changes in Internal Control over Financial Reporting
  60




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##### Table of Contents



Item 16A. Audit Committee Financial Expert
  
 Item 16B. Code of Ethics
  
 Item 16C. Principal Accountant Fees and Services
 Policy on Pre-Approval of Audit and Non-Audit Services of Independent Auditors
   
    
    All services provided to Canon necessary to perform an annual audit or
review to comply with the standards of the Public Company Accounting
Oversight Board (United States), in any jurisdiction, including tax
services and accounting consultation necessary to comply with the
standards of the Public Company Accounting Oversight Board (United
States) in those jurisdictions, and any engagement of an Independent
Registered Public Accounting Firm for any audit or non-audit service
involving estimated fees exceeding ¥10,000,000 per single engagement
must be pre-approved by the majority of board of corporate auditors.
    
    Certain other services may be pre-approved under detailed categories
of audit and non-audit services established annually by the board of
corporate auditors, as long as those services do not exceed specified
maximum yen limits for aggregate fees relating to each of those
categories. Any engagement of an Independent Registered Public
Accounting Firm by this mean must be reported to the board of
corporate auditors at its next regularly scheduled meeting.
    
    For services that are not covered by the above two means of
pre-approval, the board of corporate auditors has delegated
pre-approval authority to any of the full-time corporate auditors of
the board. Any engagement of an Independent Registered Public
Accounting Firm pre-approved by one of the full-time corporate
auditors is required to be reported to the board of corporate auditors
at its next regularly scheduled meeting.
   Fees and Services
  Year ended
    
    
    Year endedDecember 31, 2008
    
    
    December 31, 2007(Millions of yen)Audit fees
    
    ¥
    2,299
    
    
    ¥
    2,503Audit-related fees
    
    
    43
    
    
    
    16Tax fees
    
    
    34
    
    
    
    15All other fees
    
    
    4
    
    
    
    7Total
    
    ¥
    2,380
    
    
    ¥
    2,541
 Audit fees
 Audit-related fees
 Tax fees
 All other fees
  61




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Item 16D. Exemptions from the Listing Standards for Audit Committees
   
    
    the board of corporate auditors is established pursuant to applicable Japanese law and Canons Articles of Incorporation;
    
    under Japanese legal requirements, the board of corporate auditors is separate from the board of directors;
    
    the board of corporate auditors is not elected by the management of Canon and no executive officer of Canon is a member of the board of corporate auditors;
    
    all of the members of the
board of corporate auditors meet specific independence requirements
from the Company and Canon, the management and the
auditing firm, as set forth by Japanese legal provisions;
    
    the board of corporate auditors, in accordance with and to the extent permitted by Japanese law, is responsible for the appointment, retention and
oversight of the work of Canons external auditors engaged for the purpose of issuing audit reports on Canons annual financial statements;
    
    the board of corporate auditors adopted a complaints procedure (which became effective prior to July 31, 2005) in accordance with Rule 10A-3(b)(3) of the
Exchange Act;
    
    the board of corporate auditors is authorized to engage independent counsel and other advisers, as it deems appropriate; and
    
    the board of corporate auditors is provided with appropriate funding for payment of (i) compensation to Canons independent registered public accounting
firm engaged for the purpose of issuing audit reports on Canons annual financial statements, (ii) compensation to independent counsel and other advisers
engaged by the board of corporate auditors, and (iii) ordinary administrative expenses of the board of corporate auditors in carrying out its duties.
  
 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  Period
    
    (a) Total Number of
    
    (b) Average Price
    
    (c) Total Number of
    
    (d) Maximum Number ofShares Purchased
    
    Paid per Share
    
    Shares Purchased as
    
    Shares that MayPart of Publicly
    
    Yet Be PurchasedAnnounced Plans or
    
    Under the Plans or2008
    
    (Shares)
    
    (Yen)
    
    Programs
    
    ProgramsJanuary 1 - January 31
    
    1,315
    
    4,750
    
    
    
    February 1 - February 29
    
    973
    
    4,648
    
    
    
    March 1 - March 31
    
    894
    
    4,568
    
    
    
    April 1 - April 30
    
    2,151
    
    4,910
    
    
    
    May 1 - May 31
    
    2,467
    
    5,392
    
    
    
    June 1 - June 30
    
    2,515
    
    5,551
    
    
    
    July 1 - July 31
    
    2,065
    
    5,207
    
    
    
    August 1 - August 31
    
    1,863
    
    5,074
    
    
    
    September 1- September 30
    
    4,804,293
    
    4,134
    
    4,800,000
    
    October 1 - October 31
    
    8,080,307
    
    3,734
    
    8,077,200
    
    November 1 - November 30
    
    13,798,431
    
    3,624
    
    13,795,000
    
    December 1 - December 31
    
    3,872
    
    2,719
    
    
    
    
 
 Notes:(1)
    A resolution approved at the meeting of our board of directors held on September 16, 2008
authorized Canon to acquire up to 14.5 million shares with an aggregate purchase price of
¥50 billion during the period from September 17, 2008 through October 20, 2008.(2)
    A resolution approved at the meeting of our board of directors held on October 30, 2008
authorized Canon to acquire up to 20 million shares with an aggregate purchase price of ¥50
billion during the period from October 31, 2008 through November 28, 2008.(3)
    As of December 31, 2008, Canon had completed all of its share repurchase plans or
programs listed above.  
 Item 16F. Change in Registrants Certifying Accountant
  62




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Item 16G. Corporate Governance
          63




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##### 



PART III
 
 Item 17. Financial Statements
  
 Consolidated financial statements of Canon Inc. and Subsidiaries:
    
    Page numberReports of Ernst & Young ShinNihon LLC, Independent Registered Public Accounting Firm
    
    
    65Consolidated Balance Sheets as of December 31, 2008 and 2007
    
    
    67Consolidated Statements of Income for the years ended December 31, 2008, 2007 and 2006
    
    
    68Consolidated Statements of Stockholders Equity for the years ended December 31, 2008, 2007 and 2006
    
    
    69Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006
    
    
    70Notes to Consolidated Financial Statements
    
    
    71Schedule:Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2008, 2007 and 2006
    
    
    98
   64




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65




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.
   
 66




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December 312008
    
    2007(Millions of yen)AssetsCurrent assets:Cash and cash equivalents (Note 1)
    
    ¥
    679,196
    
    
    ¥
    944,463Short-term investments (Note 3)
    
    
    7,651
    
    
    
    20,499Trade receivables, net (Note 4)
    
    
    595,422
    
    
    
    794,240Inventories (Note 5)
    
    
    506,919
    
    
    
    563,474Prepaid expenses and other current assets (Notes 7 and 13)
    
    
    275,660
    
    
    
    286,111Total current assets
    
    
    2,064,848
    
    
    
    2,608,787Noncurrent receivables (Note 20)
    
    
    14,752
    
    
    
    15,239Investments (Note 3)
    
    
    88,825
    
    
    
    90,086Property, plant and equipment, net (Notes 6 and 7)
    
    
    1,357,186
    
    
    
    1,364,702Intangible assets (Notes 8 and 9)
    
    
    119,140
    
    
    
    112,516Other assets (Notes 7, 8, 9, 12 and 13)
    
    
    325,183
    
    
    
    321,295Total assets
    
    ¥
    3,969,934
    
    
    ¥
    4,512,625Liabilities and stockholders equityCurrent liabilities:Short-term loans and current portion of long-term debt (Note 10)
    
    ¥
    5,540
    
    
    ¥
    18,317Trade payables (Note 11)
    
    
    406,746
    
    
    
    514,226Accrued income taxes (Note 13)
    
    
    69,961
    
    
    
    150,726Accrued expenses (Notes 12 and 20)
    
    
    277,117
    
    
    
    357,525Other current liabilities (Notes 6 and 13)
    
    
    184,636
    
    
    
    215,911Total current liabilities
    
    
    944,000
    
    
    
    1,256,705Long-term debt, excluding current installments (Note 10)
    
    
    8,423
    
    
    
    8,680Accrued pension and severance cost (Note 12)
    
    
    110,784
    
    
    
    44,710Other noncurrent liabilities (Note 13)
    
    
    55,745
    
    
    
    57,324Total liabilities
    
    
    1,118,952
    
    
    
    1,367,419Minority interests
    
    
    191,190
    
    
    
    222,870Commitments and contingent liabilities (Note 20)Stockholders equity:Common stockAuthorized
3,000,000,000 shares;
issued 1,333,763,464 shares in 2008 and
1,333,636,210 shares in 2007 (Note 14)
    
    
    174,762
    
    
    
    174,698Additional paid-in capital (Note 14)
    
    
    403,790
    
    
    
    402,991Legal reserve (Note 15)
    
    
    53,706
    
    
    
    46,017Retained earnings (Note 15)
    
    
    2,876,576
    
    
    
    2,720,146Accumulated other comprehensive income (loss) (Note 16)
    
    
    (292,820
    )
    
    
    34,670Treasury stock, at cost; 99,275,245 shares in 2008 and 72,588,428 shares in 2007
    
    
    (556,222
    )
    
    
    (456,186
    )Total stockholders equity
    
    
    2,659,792
    
    
    
    2,922,336Total liabilities and stockholders equity
    
    ¥
    3,969,934
    
    
    ¥
    4,512,625
 See accompanying notes to consolidated financial statements.
 67




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##### Table of Contents



Years ended December 312008
    
    2007
    
    2006(Millions of yen)Net sales
    
    ¥
    4,094,161
    
    
    ¥
    4,481,346
    
    
    ¥
    4,156,759Cost of sales (Notes 6, 9, 12 and 20)
    
    
    2,156,153
    
    
    
    2,234,365
    
    
    
    2,096,279Gross profit
    
    
    1,938,008
    
    
    
    2,246,981
    
    
    
    2,060,480Operating expenses (Notes 1, 6, 9, 12, 17 and 20):Selling, general and administrative expenses
    
    
    1,067,909
    
    
    
    1,122,047
    
    
    
    1,045,140Research and development expenses
    
    
    374,025
    
    
    
    368,261
    
    
    
    308,3071,441,934
    
    
    
    1,490,308
    
    
    
    1,353,447Operating profit
    
    
    496,074
    
    
    
    756,673
    
    
    
    707,033Other income (deductions):Interest and dividend income
    
    
    19,442
    
    
    
    32,819
    
    
    
    27,153Interest expense
    
    
    (837
    )
    
    
    (1,471
    )
    
    
    (2,190
    )Other, net (Notes 1, 3 and 19)
    
    
    (33,532
    )
    
    
    (19,633
    )
    
    
    (12,853
    )(14,927
    )
    
    
    11,715
    
    
    
    12,110Income before income taxes and minority interests
    
    
    481,147
    
    
    
    768,388
    
    
    
    719,143Income taxes (Note 13)
    
    
    160,788
    
    
    
    264,258
    
    
    
    248,233Income before minority interests
    
    
    320,359
    
    
    
    504,130
    
    
    
    470,910Minority interests
    
    
    11,211
    
    
    
    15,798
    
    
    
    15,585Net income
    
    ¥
    309,148
    
    
    ¥
    488,332
    
    
    ¥
    455,325(Yen)Net income per share (Note 18):Basic
    
    ¥
    246.21
    
    
    ¥
    377.59
    
    
    ¥
    341.95Diluted
    
    
    246.20
    
    
    
    377.53
    
    
    
    341.84Cash dividends per share
    
    
    110.00
    
    
    
    110.00
    
    
    
    83.33
 See accompanying notes to consolidated financial statements.
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Additional
    
    
    
    
    
    
    
    
    
    Accumulated other
    
    
    
    
    
    TotalCommon
    
    paid-in
    
    Legal
    
    Retained
    
    comprehensive
    
    Treasury
    
    stockholdersstock
    
    capital
    
    reserve
    
    earnings
    
    income (loss)
    
    stock
    
    equity(Millions of yen)Balance at December 31, 2005
    
    
    ¥174,438
    
    
    
    ¥403,246
    
    
    
    ¥42,331
    
    
    
    ¥2,018,289
    
    
    
    ¥  (28,212
    )
    
    
    ¥   (5,410
    )
    
    
    ¥2,604,682Conversion of convertible debt and other
    
    
    165
    
    
    
    264
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    429Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (104,298
    )
    
    
    
    
    
    
    
    
    
    
    (104,298
    )Transfer to legal reserve
    
    
    
    
    
    
    
    
    
    
    1,269
    
    
    
    (1,269
    )
    
    
    
    
    
    
    
    
    
    
    Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    455,325
    
    
    
    
    
    
    
    
    
    
    
    455,325Other comprehensive income (loss), net of tax
(Note 16):Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,630
    
    
    
    
    
    
    
    48,630Net unrealized gains and losses on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,992
    
    
    
    
    
    
    
    1,992Net gains and losses on derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (489
    )
    
    
    
    
    
    
    (489
    )Minimum pension liability adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,575
    )
    
    
    
    
    
    
    (3,575
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    501,883Adjustment to initially apply SFAS 158,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,628
    )
    
    
    
    
    
    
    (15,628
    )Repurchase of treasury stock, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (462
    )
    
    
    (462
    )Balance at December 31, 2006
    
    
    174,603
    
    
    
    403,510
    
    
    
    43,600
    
    
    
    2,368,047
    
    
    
    2,718
    
    
    
    (5,872
    )
    
    
    2,986,606Cumulative effect of a change in accounting
principle  adoption of EITF 06-2,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,204
    )
    
    
    
    
    
    
    
    
    
    
    (2,204
    )Conversion of convertible debt and other
    
    
    95
    
    
    
    (522
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (427
    )Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (131,612
    )
    
    
    
    
    
    
    
    
    
    
    (131,612
    )Transfer to legal reserve
    
    
    
    
    
    
    
    
    
    
    2,417
    
    
    
    (2,417
    )
    
    
    
    
    
    
    
    
    
    
    Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    488,332
    
    
    
    
    
    
    
    
    
    
    
    488,332Other comprehensive income (loss), net of tax
(Note 16):Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62
    )
    
    
    
    
    
    
    (62
    )Net unrealized gains and losses on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,778
    )
    
    
    
    
    
    
    (1,778
    )Net gains and losses on derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    814
    
    
    
    
    
    
    
    814Pension liability adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,978
    
    
    
    
    
    
    
    32,978Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    520,284Repurchase of treasury stock, net
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (450,314
    )
    
    
    (450,311
    )Balance at December 31, 2007
    
    
    174,698
    
    
    
    402,991
    
    
    
    46,017
    
    
    
    2,720,146
    
    
    
    34,670
    
    
    
    (456,186
    )
    
    
    2,922,336Conversion of convertible debt and other
    
    
    64
    
    
    
    824
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    888Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (145,024
    )
    
    
    
    
    
    
    
    
    
    
    (145,024
    )Transfer to legal reserve
    
    
    
    
    
    
    
    
    
    
    7,689
    
    
    
    (7,689
    )
    
    
    
    
    
    
    
    
    
    
    Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    309,148
    
    
    
    
    
    
    
    
    
    
    
    309,148Other comprehensive income (loss), net of tax
(Note 16):Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (258,764
    )
    
    
    
    
    
    
    (258,764
    )Net unrealized gains and losses on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,152
    )
    
    
    
    
    
    
    (5,152
    )Net gains and losses on derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,342
    
    
    
    
    
    
    
    2,342Pension liability adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65,916
    )
    
    
    
    
    
    
    (65,916
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,342
    )Repurchase of treasury stock, net
    
    
    
    
    
    
    (25
    )
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (100,036
    )
    
    
    (100,066
    )Balance at December 31, 2008
    
    
    ¥174,762
    
    
    
    ¥403,790
    
    
    
    ¥53,706
    
    
    
    ¥2,876,576
    
    
    
    ¥(292,820
    )
    
    
    ¥(556,222
    )
    
    
    ¥2,659,792
 See accompanying notes to consolidated financial statements.
 69




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##### Table of Contents



Years ended December 312008
    
    2007
    
    2006(Millions of yen)Cash flows from operating activities:Net income
    
    ¥
    309,148
    
    
    ¥
    488,332
    
    
    ¥
    455,325Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    341,337
    
    
    
    341,694
    
    
    
    262,294Loss on disposal of property, plant and equipment
    
    
    11,811
    
    
    
    9,985
    
    
    
    16,182Deferred income taxes
    
    
    (32,497
    )
    
    
    (35,021
    )
    
    
    (6,945
    )(Increase) decrease in trade receivables
    
    
    83,521
    
    
    
    (10,722
    )
    
    
    (40,969
    )(Increase) decrease in inventories
    
    
    49,547
    
    
    
    (26,643
    )
    
    
    (5,542
    )Increase (decrease) in trade payables
    
    
    (36,719
    )
    
    
    21,136
    
    
    
    (2,313
    )Increase (decrease) in accrued income taxes
    
    
    (77,340
    )
    
    
    14,988
    
    
    
    22,657Increase (decrease) in accrued expenses
    
    
    (30,694
    )
    
    
    43,035
    
    
    
    36,165Decrease in accrued (prepaid) pension and severance cost
    
    
    (12,128
    )
    
    
    (15,387
    )
    
    
    (20,309
    )Other, net
    
    
    10,698
    
    
    
    7,872
    
    
    
    (21,304
    )Net cash provided by operating activities
    
    
    616,684
    
    
    
    839,269
    
    
    
    695,241Cash flows from investing activities:Purchases of fixed assets (Note 6)
    
    
    (428,168
    )
    
    
    (474,285
    )
    
    
    (424,862
    )Proceeds from sale of fixed assets (Note 6)
    
    
    7,453
    
    
    
    9,635
    
    
    
    12,507Purchases of available-for-sale securities
    
    
    (7,307
    )
    
    
    (2,281
    )
    
    
    (7,768
    )Proceeds from sale and maturity of available-for-sale securities
    
    
    4,320
    
    
    
    8,614
    
    
    
    4,047Proceeds from maturity of held-to-maturity securities
    
    
    10,000
    
    
    
    10,000
    
    
    
    (Increase) decrease in time deposits
    
    
    2,892
    
    
    
    31,681
    
    
    
    (35,863
    )Acquisitions of subsidiaries, net of cash acquired
    
    
    (5,999
    )
    
    
    (15,675
    )
    
    
    (2,485
    )Purchases of other investments
    
    
    (45,473
    )
    
    
    (2,432
    )
    
    
    (8,911
    )Other, net
    
    
    (10,198
    )
    
    
    2,258
    
    
    
    2,530Net cash used in investing activities
    
    
    (472,480
    )
    
    
    (432,485
    )
    
    
    (460,805
    )Cash flows from financing activities:Proceeds from issuance of long-term debt
    
    
    6,841
    
    
    
    2,635
    
    
    
    1,053Repayments of long-term debt
    
    
    (15,397
    )
    
    
    (13,046
    )
    
    
    (5,861
    )Decrease in short-term loans
    
    
    (2,643
    )
    
    
    (358
    )
    
    
    (828
    )Dividends paid
    
    
    (145,024
    )
    
    
    (131,612
    )
    
    
    (104,298
    )Repurchases of treasury stock, net
    
    
    (100,066
    )
    
    
    (450,311
    )
    
    
    (462
    )Other, net
    
    
    (21,276
    )
    
    
    (11,691
    )
    
    
    2,909Net cash used in financing activities
    
    
    (277,565
    )
    
    
    (604,383
    )
    
    
    (107,487
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (131,906
    )
    
    
    (13,564
    )
    
    
    23,724Net increase (decrease) in cash and cash equivalents
    
    
    (265,267
    )
    
    
    (211,163
    )
    
    
    150,673Cash and cash equivalents at beginning of year
    
    
    944,463
    
    
    
    1,155,626
    
    
    
    1,004,953Cash and cash equivalents at end of year
    
    ¥
    679,196
    
    
    ¥
    944,463
    
    
    ¥
    1,155,626Supplemental disclosure for cash flow information :Cash paid during the year for:Interest
    
    ¥
    901
    
    
    ¥
    1,476
    
    
    ¥
    2,146Income taxes
    
    
    263,392
    
    
    
    273,888
    
    
    
    244,236
 See accompanying notes to consolidated financial statements.
 70




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##### Table of Contents



1.
    
    Basis of Presentation and Significant Accounting Policies
 (a)
    
    Description of Business
 Canon Inc. (the Company) and subsidiaries (collectively Canon) is one of the worlds leading
manufacturers in such fields as office imaging products, computer peripherals, business
information products, cameras, and optical related products. Office imaging products consist
mainly of network multifunction devices and copying machines. Computer peripherals consist
mainly of laser beam and inkjet printers. Business information products consist mainly of
computer information systems, document scanners and calculators. Cameras consist mainly of
digital single-lens reflex (SLR) cameras, compact digital cameras, interchangeable lenses and
digital video camcorders. Optical and other products include semiconductor production equipment,
mirror projection mask aligners for liquid crystal display (LCD) panels, broadcasting
equipment, medical equipment and large format printers. Canons consolidated net sales for the
years ended December 31, 2008, 2007 and 2006 were distributed as follows: office imaging
products 27%, 29% and 28%, computer peripherals 36%, 34% and 34%, business information products
2%, 2% and 3%, cameras 25%, 26% and 25%, and optical and other products 10%, 9% and 10%,
respectively.Sales are made principally under the Canon brand name, almost entirely through sales
subsidiaries. These subsidiaries are responsible for marketing and distribution, and primarily
sell to retail dealers in their geographical area. Approximately 76%, 77% and 75% of
consolidated net sales for the years ended December 31, 2008, 2007 and 2006 were generated
outside Japan, with 28%, 30% and 31% in the Americas, 33%, 33% and 31% in Europe, and 15%, 14%
and 13% in other areas, respectively.Canon sells laser beam printers on an OEM basis to Hewlett-Packard Company; such sales
constituted approximately 23%, 22% and 22% of consolidated net sales for the years ended
December 31, 2008, 2007 and 2006, respectively.Canons manufacturing operations are conducted primarily at 25 plants in Japan and 18 overseas
plants which are located in countries or regions such as the United States, Germany, France,
Taiwan, China, Malaysia, Thailand and Vietnam.
 (b)
    
    Basis of Presentation
 The Company and its domestic subsidiaries maintain their books of account in conformity with
financial accounting standards of Japan. Foreign subsidiaries maintain their books of account in
conformity with financial accounting standards of the countries of their domicile.Certain adjustments and reclassifications have been incorporated in the accompanying
consolidated financial statements to conform with U.S. generally accepted accounting
principles. These adjustments were not recorded in the statutory books of account.
 (c)
    
    Principles of Consolidation
 The consolidated financial statements include the accounts of the Company, its majority owned
subsidiaries and those variable interest entities where the Company or its consolidated
subsidiaries are the primary beneficiaries under Financial Accounting Standards Board (FASB)
Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities.
All significant intercompany balances and transactions have been eliminated.
 (d)
    
    Use of Estimates
 The preparation of the consolidated financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the period. Significant estimates and assumptions are reflected in
valuation and disclosure of revenue recognition, allowance for doubtful receivables, valuation
of inventories, impairment of long-lived assets, environmental liabilities, valuation of
deferred tax assets, uncertain tax positions and employee retirement and severance benefit
plans. Actual results could differ materially from those estimates.
 (e)
    
    Translation of Foreign Currencies
 Assets and liabilities of the Companys subsidiaries located outside Japan with functional
currencies other than Japanese yen are translated into Japanese yen at the rates of exchange
in effect at the balance sheet date. Income and expense items are translated at the average exchange rates prevailing during the year. Gains and losses resulting
from translation of financial statements are excluded from earnings and are reported in other
comprehensive income (loss).Gains and losses resulting from foreign currency transactions, including foreign exchange
contracts, and translation of assets and liabilities denominated in foreign currencies are
included in other income (deductions) in the consolidated statements of income. Foreign currency
exchange losses, net were ¥11,212 million, ¥31,943 million and ¥25,804 million for the years
ended December 31, 2008, 2007 and 2006, respectively.
 (f)
    
    Cash Equivalents
 All highly liquid investments acquired with original maturities of three months or less are
considered to be cash equivalents. Certain debt securities with original maturities of less
than three months classified as available-for-sale securities of ¥194,030 million and ¥164,610
million at December 31,2008 and 2007, respectively, are included in cash and cash equivalents
in the consolidated balance sheets. Additionally, certain debt securities with original
maturities of less than three months classified as held-to-maturity securities of ¥997 million
and ¥5,992 million at December 31, 2008 and 2007, respectively, are also included in cash and
cash equivalents. Fair value for these securities approximates their cost.
 71




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##### Table of Contents



1.
    
    Basis of Presentation and Significant Accounting Policies (continued)
 (g)
    
    Investments
 Investments consist primarily of time deposits with original maturities of more than three months,
debt and marketable equity securities, investments in affiliated companies and non-marketable
equity securities. Canon reports investments with maturities of less than one year as
short-term investments.Canon classifies investments in debt and marketable equity securities as available-for-sale or
held-to-maturity securities. Canon does not hold any trading securities, which are bought and
held primarily for the purpose of sale in the near term.Available-for-sale securities are recorded at fair value. Unrealized holding gains and losses,
net of the related tax effect, are reported as a separate component of other comprehensive
income (loss) until realized. Held-to-maturity securities are recorded at amortized cost,
adjusted for the amortization or accretion of premiums or discounts.Available-for-sale and held-to-maturity securities are regularly reviewed for
other-than-temporary declines in carrying value based on criteria that include the length of
time and the extent to which the market value has been less than cost, the financial condition
and near-term prospects of the issuer and Canons intent and ability to retain the investment
for a period of time sufficient to allow for any anticipated recovery in market value. When
such a decline exists, Canon recognizes an impairment loss to the extent by which the cost
basis of the investment exceeds the fair value of the investment. Fair value is determined
based on quoted market prices, projected discounted cash flows or other valuation techniques as
appropriate.Realized gains and losses are determined on the average cost method and reflected in earnings.Investments in affiliated companies over which Canon has the ability to exercise significant
influence, but does not hold a controlling financial interest, are accounted for by the equity
method.Non-marketable equity securities in companies over which Canon does not have the ability to
exercise significant influence are stated at cost and reviewed periodically for impairment.
 (h)
    
    Allowance for Doubtful Receivables
 Allowance for doubtful trade and finance receivables is maintained for all customers based on a
combination of factors, including aging analysis, macroeconomic conditions, significant
one-time events, and historical experience. An additional reserve for individual accounts is
recorded when Canon becomes aware of a customers inability to meet its financial obligations,
such as in the case of bankruptcy filings. If circumstances related to customers change,
estimates of the recoverability of receivables would be further adjusted. When all collection
options are exhausted including legal recourse, the accounts or portions thereof are deemed to
be uncollectable and charged against the allowance.
 (i)
    
    Inventories
 Inventories are stated at the lower of cost or market value. Cost is determined by the average
method for domestic inventories and principally by the first-in, first-out method for overseas
inventories.
 (j)
    
    Impairment of Long-Lived Assets
 Long-lived assets, such as property, plant and equipment, and acquired intangibles subject to
amortization, are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of the asset and the estimated
undiscounted future cash flows expected to be generated by the asset. If the carrying amount of
the asset exceeds its estimated undiscounted future cash flows, an impairment charge is
recognized in the amount by which the carrying amount of the asset exceeds the fair value of the
asset. Assets to be disposed of by sale are reported at the lower of the carrying amount or
fair value less costs to sell, and are no longer depreciated.
 (k)
    
    Property, Plant and Equipment and Accounting Change
 Property, plant and equipment are stated at cost. Depreciation is calculated principally by the
declining-balance method, except for certain assets which are depreciated by the straight-line
method over the estimated useful lives of the assets.
 Effective April 1, 2007, the Company and its domestic subsidiaries elected to change the
declining-balance method of depreciating machinery and equipment from the
fixed-percentage-on-declining base application to the 250% declining-balance application.
Estimated residual values were also reduced in conjunction with this change. The Company and
its domestic subsidiaries believe that the 250% declining-balance application is preferable
because it provides a better matching of the allocation of cost of machinery and equipment with
associated revenues in light of increasingly short product life cycles.In accordance with Statement of Financial Accounting Standards (SFAS) No. 154, Accounting
Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No.
3, this change in depreciation methods represented a change in accounting estimate effected
by a change in accounting principle. Accordingly, the affects of the change have been
accounted for prospectively beginning with the period of change and prior period results
have not been restated. The change in depreciation methods caused an increase in
depreciation expense by ¥63,773 million for the year ended December 31, 2007. Net income,
basic net income per share and diluted net income per share decreased by ¥32,321 million,
¥24.99 and ¥24.99, respectively, for the year ended December 31, 2007.The depreciation period ranges from 3 years to 60 years for buildings and 1 year to 20 years
for machinery and equipment.Assets leased to others under operating leases are stated at cost and depreciated to the estimated
residual value of the assets by the straight-line method over the period ranging from 2 years
to 5 years.
 72




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##### Table of Contents



1.
    
    Basis of Presentation and Significant Accounting Policies (continued)
 (l)
    
    Goodwill and Other Intangible Assets
 Goodwill and other intangible assets with indefinite useful lives are not amortized, but are
instead tested for impairment annually in the fourth quarter of each year, or more frequently if
indicators of potential impairment exist. Intangible assets with finite useful lives, consisting
primarily of software and license fees, are amortized using the straight-line method over the
estimated useful lives, which range from 3 years to 5 years for software and 5 years to 10 years
for license fees. Certain costs incurred in connection with developing or obtaining internal use
software are capitalized. These costs consist primarily of payments made to third parties and
the salaries of employees working on such software development. Costs incurred in connection
with developing internal use software are capitalized at the application development stage. In
addition, Canon develops or obtains certain software to be sold where related costs are
capitalized after establishment of technological feasibility.
 (m)
    
    Environmental Liabilities
 Liabilities for environmental remediation and other environmental costs are accrued when
environmental assessments or remedial efforts are probable and the costs can be reasonably
estimated. Such liabilities are adjusted as further information develops or circumstances
change. Costs of future obligations are not discounted to their present values.
 (n)
    
    Income Taxes
 Deferred tax assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Canon records a valuation
allowance to reduce the deferred tax assets to the amount that is more likely than not
realizable.Canon recognizes the financial statement effects of tax positions when it is more likely than
not, based on the technical merits, that the tax positions will be sustained upon examination
by the tax authorities. Benefits from tax positions that meet the more-likely-than-not
recognition threshold are measured at the largest amount of benefit that is greater than 50
percent likely of being realized upon settlement. Interest and penalties accrued related to
unrecognized tax benefits are included in income taxes in the consolidated statements of
income.
 (o)
    
    Issuance of Stock by Subsidiaries and Equity Investees
 The change in the Companys proportionate share of a subsidiarys or equity investees equity
resulting from the issuance of stock by the subsidiary or equity investee is accounted for as an
equity transaction.
 (p)
    
    Stock-Based Compensation
 Canon measures stock-based compensation cost at the grant date, based on the fair value of the
award, and recognizes the cost on a straight-line basis over the requisite service period,
which is the vesting period.
 (q)
    
    Net Income per Share
 Basic net income per share is computed by dividing net income by the weighted-average number of
common shares outstanding during each year. Diluted net income per share includes the effect
from potential issuances of common stock based on the assumptions that all convertible
debentures were converted into common stock and all stock options were exercised.
 (r)
    
    Revenue Recognition
 Canon generates revenue principally through the sale of consumer products, equipment, supplies,
and related services under separate contractual arrangements. Canon recognizes revenue when
persuasive evidence of an arrangement exists, delivery has occurred and title and risk of loss
have been transferred to the customer or services have been rendered, the sales price is fixed
or determinable, and collectibility is probable.Revenue from sales of consumer products including office imaging products, computer
peripherals, business information products and cameras is recognized upon shipment or delivery,
depending upon when title and risk of loss transfer to the customer.Revenue from sales of optical equipment, such as steppers and aligners that are sold with
customer acceptance provisions related to their functionality, is recognized when the equipment is installed at the customer
site and the specific criteria of the equipment functionality are successfully tested and
demonstrated by Canon. Service revenue is derived primarily from separately priced product
maintenance contracts on equipment sold to customers and is measured at the stated amount of
the contract and recognized as services are provided.Canon also offers separately priced product maintenance contracts for most office imaging
products, for which the customer typically pays a stated base service fee plus a variable
amount based on usage. Revenue from these service maintenance contracts is measured at the
stated amount of the contract and recognized as services are provided and variable amounts are
earned.Revenue from the sale of equipment under sales-type leases is recognized at the inception of the
lease. Income on sales-type leases and direct-financing leases is recognized over the life of
each respective lease using the interest method. Leases not qualifying as sales-type leases or
direct-financing leases are accounted for as operating leases and related revenue is
recognized ratably over the lease term. When equipment leases are bundled with product
maintenance contracts, revenue is first allocated considering the relative fair value of the
lease and non-lease deliverables based upon the estimated relative fair values of each
element. Lease deliverables generally include equipment, financing and executory costs, while
non-lease deliverables generally consist of product maintenance contracts and supplies.
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1.
    
    Basis of Presentation and Significant Accounting Policies (continued)
 (r)
    
    Revenue Recognition (continued)
 For all other arrangements with multiple elements, Canon allocates revenue to each element
based on its relative fair value if such element meets the criteria for treatment as a separate
unit of accounting as prescribed in the Emerging Issues Task Force (EITF) Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables. Otherwise, revenue is deferred until the
undelivered elements are fulfilled and accounted for as a single unit of accounting.Canon records estimated reductions to sales at the time of sale for sales incentive programs
including product discounts, customer promotions and volume-based rebates. Estimated
reductions in sales are based upon historical trends and other known factors at the time of
sale. In addition, Canon provides price protection to certain resellers of its products, and
records reductions to sales for the estimated impact of price protection obligations when
announced.Estimated product warranty costs are recorded at the time revenue is recognized and are
included in selling, general and administrative expenses. Estimates for accrued product
warranty costs are based on historical experience, and are affected by ongoing product failure
rates, specific product class failures outside of the baseline experience, material usage and
service delivery costs incurred in correcting a product failure.Taxes collected from customers and remitted to governmental authorities are excluded from
revenues in the consolidated statements of income.
 (s)
    
    Research and Development Costs
 Research and development costs are expensed as incurred.
 (t)
    
    Advertising Costs
 Advertising costs are expensed as incurred. Advertising expenses were ¥112,810 million,
¥132,429 million and ¥116,809 million for the years ended December 31, 2008, 2007 and 2006,
respectively.
 (u)
    
    Shipping and Handling Costs
 Shipping and handling costs totaled ¥62,128 million, ¥63,708 million and ¥62,626 million for the
years ended December 31, 2008, 2007 and 2006, respectively, and are included in selling, general
and administrative expenses in the consolidated statements of income.
 (v)
    
    Derivative Financial Instruments
 All derivatives are recognized at fair value and are included in prepaid expenses and other
current assets, or other current liabilities in the consolidated balance sheets. On the date the
derivative contract is entered into, Canon designates the derivative as either a hedge of the
fair value of a recognized asset or liability or of an unrecognized firm commitment (fair
value hedge), or a hedge of a forecasted transaction or the variability of cash flows to be
received or paid related to a recognized asset or liability (cash flow hedge). Canon formally
documents all relationships between hedging instruments and hedged items, as well as its
risk-management objective and strategy for undertaking various hedge transactions. Canon also
formally assesses, both at the hedges inception and on an ongoing basis, whether the
derivatives that are used in hedging transactions are highly effective in offsetting changes in
fair values or cash flows of hedged items. When it is determined that a derivative is not highly
effective as a hedge or that it has ceased to be a highly effective hedge, Canon discontinues
hedge accounting prospectively.Changes in the fair value of a derivative that is designated and qualifies as a fair-value
hedge, along with the loss or gain on the hedged asset or liability or unrecognized firm
commitment of the hedged item that is attributable to the hedged risk, are recorded in
earnings. Changes in the fair value of a derivative that is designated and qualifies as a
cash-flow hedge are recorded in other comprehensive income (loss), until earnings are affected
by the variability in cash flows of the hedged item. Gains and losses from hedging
ineffectiveness are included in other income (deductions). Gains and losses related to the
components of hedging instruments excluded from the assessment of hedge effectiveness are
included in other income (deductions).Canon also uses certain derivative financial instruments which are not designated as hedges.
Canon records these derivative financial instruments in the consolidated balance sheets at fair
value. The changes in fair values are immediately recorded in earnings.Canon classifies cash flows from derivatives as cash flows from operating activities in the
consolidated statements of cash flows.
 (w)
    
    Guarantees
 Canon recognizes, at the inception of a guarantee, a liability for the fair value of the
obligation it has undertaken in issuing guarantees.
 (x)
    
    New Accounting Standards
 In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS
157 defines fair value, establishes a framework for measuring fair value, and expands
disclosures about fair value measurements. This statement clarifies how to measure fair value
as permitted or required under other accounting pronouncements, but does not require any new
fair value measurements. In February 2008, the FASB issued Staff Position (FSP) No. FAS
157-2, Effective Date of FASB Statement No. 157, which delays the effective date of SFAS 157
for one year for certain nonfinancial assets and liabilities. Canon adopted SFAS 157 in the
first quarter beginning January 1, 2008 for all financial assets and liabilities that are
recognized or disclosed at fair value in the financial statements. This adoption did not have
a material impact on Canons consolidated results of operations and financial condition. The
adoption of SFAS 157 for all nonfinancial assets and liabilities beginning January 1, 2009
will not have a material impact on Canons consolidated results of operations and financial
condition. See Note 22 for the disclosures required by SFAS 157.
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1.
    
    Basis of Presentation and Significant Accounting Policies (continued)
 (x)
    
    New Accounting Standards (continued)
 In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities, Including an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159
provides companies with an option to report selected financial assets and liabilities at fair
value. Unrealized gains and losses on items for which the fair value option has been elected
are recognized in earnings. SFAS 159 is effective for fiscal years beginning after November
15, 2007 and was adopted by Canon in the first quarter beginning January 1, 2008. The adoption
of SFAS 159 did not have an impact on Canons consolidated results of operations and financial
condition as Canon did not elect to report financial assets and liabilities under the fair
value option.In June 2007, the FASB ratified the consensus in EITF Issue No. 07-3, Accounting for
Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and
Development Activities (EITF 07-3). EITF 07-3 requires that nonrefundable advance payments
for goods or services that will be used or rendered for future research and development
activities be deferred and capitalized and recognized as an expense as the related goods are
delivered or the related services are performed. EITF 07-3 is effective, on a prospective
basis, for fiscal years beginning after December 15, 2007 and was adopted by Canon in the first
quarter beginning January 1, 2008. The adoption of EITF 07-3 did not have a material impact on
Canons consolidated results of operations and financial condition.In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations  (SFAS
141R). SFAS 141R establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the liabilities assumed,
any noncontrolling interest in the acquiree and the goodwill acquired in a business
combination. SFAS 141R also establishes disclosure requirements to enable the evaluation of the
nature and financial effects of the business combination. SFAS 141R is effective for fiscal
years beginning on or after December 15, 2008 and is required to be adopted by Canon for any
business combinations with an acquisition date on or after January 1, 2009. The impact of the
adoption of SFAS 141R on Canons consolidated results of operations and financial condition
will be largely dependent on the size and nature of the business combinations completed after
the adoption of this statement.In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51 (SFAS 160). SFAS 160 establishes
accounting and reporting standards for ownership interests in subsidiaries held by parties
other than the parent, the amount of consolidated net income attributable to the parent and to
the noncontrolling interest, changes in a parents ownership interest, and the valuation of
retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also
establishes disclosure requirements that clearly identify and distinguish between the interests
of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal
years beginning on or after December 15, 2008 on a prospective basis, except for certain
presentation and disclosure requirements, which will be applied retrospectively for all periods
presented, and is required to be adopted by Canon in the first quarter beginning January 1,
2009. The adoption of SFAS 160 will impact the presentation of Canons consolidated balance
sheets and consolidated statements of income; however, it will not have a material impact on
Canons consolidated results of operations and financial condition.In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 amends and
expands the current disclosures required by SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). SFAS 161 requires entities to provide greater
transparency about how and why an entity uses derivative instruments, how derivative
instruments and related hedged items are accounted for under SFAS 133 and its interpretations,
and how derivative instruments and related hedged items affect an entitys financial position,
results of operations and cash flows. SFAS 161 does not change the existing standards relative
to recognition and measurement of derivative instruments and hedging activities. SFAS 161 is
effective for financial statements issued for fiscal years and interim periods beginning after
November 15, 2008 and is required to be adopted by Canon in the first quarter beginning January
1, 2009. The adoption of SFAS 161 will not have an impact on Canons consolidated results of
operations and financial condition.In December 2008, the FASB issued FSP FAS No. 132(R)-1, Employers Disclosures about
Postretirement Benefit Plan Assets (FSP 132R-1). FSP 132R-1 requires additional disclosures
about plan assets including investment allocation, fair value of major categories of plan
assets, development of fair value measurements, and concentrations of risk. FSP 132R-1 is
effective for fiscal years ending after December 15, 2009 and is required to be adopted by
Canon in the year ending December 31, 2009. Canon is currently evaluating the requirements of
these additional disclosures, but does not expect the adoption of FSP 132R-1 to have an impact
on Canons consolidated results of operations and financial condition.
 (y)
    
    Reclassification
 Time deposits with original maturities of more than three months and marketable securities,
which were previously disclosed separately in the consolidated balance sheets, have been
reclassified to short-term investments to conform to the current year presentation.Intangible assets, which were previously included in other assets, have been reclassified to
intangible assets in the consolidated balance sheets to conform to the current year presentation.
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2.
    
    Foreign Operations
  2008
    
    2007
    
    2006(Millions of yen)December 31:Total assets
    
    ¥
    1,502,451
    
    
    ¥
    2,077,268
    
    
    ¥
    1,995,927Net assets
    
    
    850,491
    
    
    
    1,024,150
    
    
    
    907,845Years ended December 31:Net sales
    
    ¥
    3,095,485
    
    
    ¥
    3,433,036
    
    
    ¥
    3,119,102Net income
    
    
    72,520
    
    
    
    136,560
    
    
    
    114,916
 3.
    
    Investments
  December 31, 2008Grossunrealized
    
    Grossunrealized
    
    FairCost
    
    holding gains
    
    holding losses
    
    value(Millions of yen)Current:Available-for-sale:Government bonds
    
    ¥
    1
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    1Fund trusts
    
    
    133
    
    
    
    16
    
    
    
    
    
    
    
    149¥
    134
    
    
    ¥
    16
    
    
    ¥
    
    
    
    ¥
    150Noncurrent:Available-for-sale:Government bonds
    
    ¥
    431
    
    
    ¥
    
    
    
    ¥
    18
    
    
    ¥
    413Corporate debt securities
    
    
    1,593
    
    
    
    27
    
    
    
    32
    
    
    
    1,588Fund trusts
    
    
    2,366
    
    
    
    40
    
    
    
    170
    
    
    
    2,236Equity securities
    
    
    10,522
    
    
    
    2,532
    
    
    
    836
    
    
    
    12,218¥
    14,912
    
    
    ¥
    2,599
    
    
    ¥
    1,056
    
    
    ¥
    16,455
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3.
    
    Investments (continued)
 December 31, 2007Gross unrealized
    
    Gross unrealized
    
    FairCost
    
    holding gains
    
    holding losses
    
    value(Millions of yen)Current:Available-for-sale:Bank debt securities
    
    ¥
    51
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    51Held-to-maturity:Corporate debt securities
    
    
    10,115
    
    
    
    
    
    
    
    
    
    
    
    10,115¥
    10,166
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    10,166Noncurrent:Available-for-sale:Government bonds
    
    ¥
    496
    
    
    ¥
    
    
    
    ¥
    25
    
    
    ¥
    471Corporate debt securities
    
    
    3,183
    
    
    
    31
    
    
    
    49
    
    
    
    3,165Fund trusts
    
    
    3,573
    
    
    
    1,158
    
    
    
    3
    
    
    
    4,728Equity securities
    
    
    12,666
    
    
    
    10,233
    
    
    
    583
    
    
    
    22,316¥
    19,918
    
    
    ¥
    11,422
    
    
    ¥
    660
    
    
    ¥
    30,680
  Available-for-sale securitiesCost
    
    Fair value(Millions of yen)Due within one year
    
    ¥
    134
    
    
    ¥
    150Due after one year through five years
    
    
    3,542
    
    
    
    3,426Due after five years through ten years
    
    
    848
    
    
    
    811¥
    4,524
    
    
    ¥
    4,387
      77




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4.
    
    Trade Receivables
  December 312008
    
    2007(Millions of yen)Notes
    
    ¥
    20,303
    
    
    ¥
    23,632Accounts
    
    
    584,437
    
    
    
    785,155604,740
    
    
    
    808,787Less allowance for doubtful receivables
    
    
    (9,318
    )
    
    
    (14,547
    )¥
    595,422
    
    
    ¥
    794,240
 5.
    
    Inventories
  December 312008
    
    2007(Millions of yen)Finished goods
    
    ¥
    316,533
    
    
    ¥
    366,845Work in process
    
    
    171,511
    
    
    
    175,704Raw materials
    
    
    18,875
    
    
    
    20,925¥
    506,919
    
    
    ¥
    563,474
 6.
    
    Property, Plant and Equipment
  December 312008
    
    2007(Millions of yen)Land
    
    ¥
    247,602
    
    
    ¥
    249,959Buildings
    
    
    1,268,388
    
    
    
    1,198,519Machinery and equipment
    
    
    1,395,451
    
    
    
    1,406,849Construction in progress
    
    
    81,346
    
    
    
    103,7492,992,787
    
    
    
    2,959,076Less accumulated depreciation
    
    
    (1,635,601
    )
    
    
    (1,594,374
    )¥
    1,357,186
    
    
    ¥
    1,364,702
    78




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7.
    
    Finance Receivables and Operating Leases
 Finance receivables represent financing leases which consist of sales-type leases and
direct-financing leases resulting from the marketing of Canons and complementary third-party
products. These receivables typically have terms ranging from 1 year to 7 years. The components of
the finance receivables, which are included in prepaid expenses and other current assets, and other
assets in the accompanying consolidated balance sheets, are as follows:
 December 312008
    
    2007(Millions of yen)Total minimum lease payments receivable
    
    
    ¥198,611
    
    
    
    ¥229,229Unguaranteed residual values
    
    
    16,310
    
    
    
    17,036Executory costs
    
    
    (1,729
    )
    
    
    (2,960
    )Unearned income
    
    
    (26,658
    )
    
    
    (27,756
    )186,534
    
    
    
    215,549Less allowance for doubtful receivables
    
    
    (8,268
    )
    
    
    (8,590
    )178,266
    
    
    
    206,959Less current portion
    
    
    (59,608
    )
    
    
    (72,776
    )¥118,658
    
    
    
    ¥134,183
 The cost of equipment leased to customers under operating leases included in property, plant and
equipment, net at December 31, 2008 and 2007 was ¥50,388 million and ¥63,190 million, respectively.
Accumulated depreciation on equipment under operating leases at December 31, 2008 and 2007 was
¥37,284 million and ¥48,818 million, respectively.
 The following is a schedule by year of the future minimum lease payments to be received under
financing leases and non-cancelable operating leases at December 31, 2008.
  Financing leases
    
    Operating leases(Millions of yen)Year ending December 31:2009
    
    ¥
    76,599
    
    
    ¥
    4,2252010
    
    
    57,305
    
    
    
    1,5852011
    
    
    38,152
    
    
    
    8322012
    
    
    19,024
    
    
    
    3902013
    
    
    6,743
    
    
    
    54Thereafter
    
    
    788
    
    
    
    7¥
    198,611
    
    
    ¥
    7,093
 8.
    
    Acquisitions
 In 2007, the Company and one of its subsidiaries acquired two companies for a total cost of
¥26,387 million. One company, which was acquired with cash, is engaged in developing,
manufacturing, selling and providing services for equipment used in the manufacture of organic
EL display panels and thin-film solar cells. The other company, which was acquired with cash
and share exchange by the subsidiary of the Company, is engaged in providing architecture,
management and maintenance services for information systems. In
connection with those transactions, Canon recognized goodwill of ¥7,556 million, which is included
in other assets, and intangible assets of ¥7,131 million, which are included in intangible assets
in the accompanying consolidated balance sheets. Intangible assets consist primarily of
manufacturing technology, trademarks, patents, customer contracts and related customer
relationships, and are subject to a weighted average amortization period of approximately 13 years
as of the date of acquisition.
 Canon acquired businesses other than those described above during the years ended December 31,
2008, 2007 and 2006 that were not material to its consolidated financial statements.
 Canon has included the results of operations of these transactions prospectively from the
respective dates of transactions. Canon has not presented pro forma results of operations of the
acquired businesses because the results are not material to its consolidated results of operations
on either an individual or an aggregate basis.
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9.
    
    Goodwill and Other Intangible Assets
 Intangible assets developed or acquired during the year ended December 31, 2008 totaled ¥47,050
million, which are subject to amortization and primarily consist of software of ¥38,986 million,
which is mainly for internal use, and license fees of ¥2,217 million, in addition to those recorded
from acquired businesses. The weighted average amortization period for software, license fees and
intangible assets in total is approximately 4 years, 7 years and 4 years, respectively.
   December 31, 2008
    
    December 31, 2007Gross carrying
    
    Accumulated
    
    Gross carrying
    
    Accumulatedamount
    
    amortization
    
    amount
    
    amortization(Millions of yen)Software
    
    
    ¥187,920
    
    
    
    ¥103,535
    
    
    
    ¥174,645
    
    
    
    ¥  96,445License fees
    
    
    21,537
    
    
    
    11,104
    
    
    
    22,825
    
    
    
    11,697Other
    
    
    34,341
    
    
    
    10,925
    
    
    
    31,488
    
    
    
    9,241¥243,798
    
    
    
    ¥125,564
    
    
    
    ¥228,958
    
    
    
    ¥117,383
 Aggregate amortization expense for the years ended December 31, 2008, 2007 and 2006 was ¥36,715
million, ¥31,879 million and ¥26,490 million, respectively. Estimated amortization expense for
intangible assets currently held for the next five years ending December 31 is ¥35,010 million in
2009, ¥27,402 million in 2010, ¥16,455 million in 2011, ¥9,030 million in 2012, and ¥6,016 million
in 2013.
 Intangible assets not subject to amortization other than goodwill at December 31, 2008 and 2007
were not significant.
 The changes in the carrying amount of goodwill, which is included in other assets in the
consolidated balance sheets, for the years ended December 31, 2008 and 2007 were as follows:
 Years ended December 312008
    
    2007(Millions of yen)Balance at beginning of year
    
    
    ¥56,783
    
    
    
    ¥40,801Goodwill acquired during the year
    
    
    4,975
    
    
    
    13,573Translation adjustments and other
    
    
    (11,004
    )
    
    
    2,409Balance at end of year
    
    
    ¥50,754
    
    
    
    ¥56,783
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10.
    
    Short-Term Loans and Long-Term Debt
 Short-term loans consisting of bank borrowings at December 31, 2008 and 2007 were ¥220 million and
¥2,888 million, respectively. The weighted average interest rates on short-term loans outstanding
at December 31, 2008 and 2007 were 6.21% and 3.16%, respectively.
 Long-term debt consisted of the following:
  December 312008
    
    2007(Millions of yen)Loans, principally from banks, maturing in
installments through 2017;
bearing weighted
average interest of 2.93% and 1.80% at December
31,
2008 and 2007, respectively
    
    ¥
    95
    
    
    
    ¥  2,9932.27% Japanese yen notes, due 2008
    
    
    
    
    
    
    10,0001.30% Japanese yen convertible debentures, due 2008
    
    
    
    
    
    
    128Capital lease obligations
    
    
    13,648
    
    
    
    10,98813,743
    
    
    
    24,109Less current portion
    
    
    (5,320
    )
    
    
    (15,429
    )¥
    8,423
    
    
    
    ¥  8,680
   Year ending December 31:
    
    (Millions of yen)2009
    
    ¥
    5,3202010
    
    
    4,4102011
    
    
    3,0052012
    
    
    8222013
    
    
    135Thereafter
    
    
    51¥
    13,743
 Both short-term and long-term bank loans are made under general agreements which provide that
security and guarantees for present and future indebtedness will be given upon request of the bank,
and that the bank shall have the right to offset cash deposits against obligations that have become
due or, in the event of default, against all obligations due to the bank.
 11.
    
    Trade Payables
   December 312008
    
    2007(Millions of yen)Notes
    
    ¥
    14,544
    
    
    ¥
    17,088Accounts
    
    
    392,202
    
    
    
    497,138¥
    406,746
    
    
    ¥
    514,226
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12.
    
    Employee Retirement and Severance Benefits
 The Company and certain of its subsidiaries have contributory and noncontributory defined benefit
pension plans covering substantially all of their employees. Benefits payable under the plans are
based on employee earnings and years of service. Certain foreign subsidiaries also have defined
contribution pension plans covering substantially all of their employees.
 Effective January 1, 2007, the Company and certain of its domestic subsidiaries amended their
funded defined benefit pension plans. Under these funded defined benefit pension plans, the
lifetime pension benefit is based upon amounts payable during an initial period after retirement
(the guarantee period) and the subsequent period lasting for the remainder of the retirees
lifetime (the post-guarantee period). The Company and certain of its domestic subsidiaries
amended these plans to increase the duration of this guarantee period from 15 years to 20 years to
reflect an increase in the average lifespan of their employees, resulting in reduced amounts
payable during each of the guarantee and post-guarantee periods. As a result of these changes, the
projected benefit obligation decreased by ¥101,620 million. In conjunction with these plan changes,
the Company and certain of its domestic subsidiaries also have implemented an unfunded retirement
and severance plan and a defined contribution pension plan for certain future pension benefits
attributable to employees future services.
 The amounts of cost recognized for the defined contribution pension plans of the Company and
certain of its subsidiaries for the years ended December 31,
2008, 2007 and 2006 were ¥10,840
million, ¥10,262 million and ¥6,233 million, respectively.
 Obligations and funded status
  Japanese plans
    
    Foreign plansDecember 31
    
    December 312008
    
    2007
    
    2008
    
    2007(Millions of yen)Change in benefit obligations:Benefit obligations at beginning of year
    
    ¥
    493,478
    
    
    ¥
    578,086
    
    
    ¥
    113,833
    
    
    ¥
    110,505Service cost
    
    
    20,786
    
    
    
    20,161
    
    
    
    3,141
    
    
    
    4,016Interest cost
    
    
    12,253
    
    
    
    11,888
    
    
    
    4,991
    
    
    
    4,947Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    1,460
    
    
    
    1,613Amendments
    
    
    (204
    )
    
    
    (101,620
    )
    
    
    (86
    )
    
    
    Actuarial (gain) loss
    
    
    10,160
    
    
    
    (4,623
    )
    
    
    (4,521
    )
    
    
    (3,293
    )Benefits paid
    
    
    (14,488
    )
    
    
    (12,888
    )
    
    
    (2,210
    )
    
    
    (3,177
    )Acquisition
    
    
    
    
    
    
    2,474
    
    
    
    
    
    
    
    Foreign currency exchange rate changes
    
    
    
    
    
    
    
    
    
    
    (38,140
    )
    
    
    (778
    )Benefit obligations at end of year
    
    
    521,985
    
    
    
    493,478
    
    
    
    78,468
    
    
    
    113,833Change in plan assets:Fair value of plan assets at beginning of year
    
    
    511,450
    
    
    
    520,476
    
    
    
    92,908
    
    
    
    87,173Actual return on plan assets
    
    
    (81,981
    )
    
    
    (15,796
    )
    
    
    (8,453
    )
    
    
    2,283Employer contributions
    
    
    14,716
    
    
    
    17,510
    
    
    
    8,317
    
    
    
    4,210Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    1,460
    
    
    
    1,613Benefits paid
    
    
    (14,315
    )
    
    
    (12,498
    )
    
    
    (1,556
    )
    
    
    (2,242
    )Acquisition
    
    
    
    
    
    
    1,758
    
    
    
    
    
    
    
    Foreign currency exchange rate changes
    
    
    
    
    
    
    
    
    
    
    (29,680
    )
    
    
    (129
    )Fair value of plan assets at end of year
    
    
    429,870
    
    
    
    511,450
    
    
    
    62,996
    
    
    
    92,908Funded status at end of year
    
    ¥
    (92,115
    )
    
    ¥
    17,972
    
    
    ¥
    (15,472
    )
    
    ¥
    (20,925
    )
 82




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##### Table of Contents



12.
    
    Employee Retirement and Severance Benefits (continued)
  Japanese plans
    
    Foreign plansDecember 31
    
    December 312008
    
    2007
    
    2008
    
    2007(Millions of yen)Other assets
    
    ¥
    806
    
    
    ¥
    41,567
    
    
    ¥
    2,461
    
    
    ¥
    347Accrued expenses
    
    
    
    
    
    
    
    
    
    
    (70
    )
    
    
    (157
    )Accrued pension and severance cost
    
    
    (92,921
    )
    
    
    (23,595
    )
    
    
    (17,863
    )
    
    
    (21,115
    )¥
    (92,115
    )
    
    ¥
    17,972
    
    
    ¥
    (15,472
    )
    
    ¥
    (20,925
    )
  Japanese plans
    
    Foreign plansDecember 31
    
    December 312008
    
    2007
    
    2008
    
    2007(Millions of yen)Actuarial loss
    
    ¥
    251,731
    
    
    
    ¥ 146,937
    
    
    ¥
    15,650
    
    
    ¥
    16,905Prior service credit
    
    
    (168,904
    )
    
    
    (182,073
    )
    
    
    (768
    )
    
    
    (953
    )Net transition obligation
    
    
    2,166
    
    
    
    2,888
    
    
    
    
    
    
    
    ¥
    84,993
    
    
    ¥
    (32,248
    )
    
    ¥
    14,882
    
    
    ¥
    15,952
  Japanese plans
    
    Foreign plansDecember 31
    
    December 312008
    
    2007
    
    2008
    
    2007(Millions of yen)Accumulated benefit obligation
    
    ¥
    493,559
    
    
    ¥
    471,146
    
    
    ¥
    71,627
    
    
    ¥
    104,275
  Japanese plans
    
    Foreign plansDecember 31
    
    December 312008
    
    2007
    
    2008
    
    2007(Millions of yen)Plans with projected benefit obligations in excess of plan assets:Projected benefit obligations
    
    ¥
    516,646
    
    
    ¥
    179,455
    
    
    ¥
    77,083
    
    
    ¥
    113,790Fair value of plan assets
    
    
    423,725
    
    
    
    155,860
    
    
    
    59,150
    
    
    
    92,518Plans with accumulated benefit obligations in excess of plan assets:Accumulated benefit obligations
    
    ¥
    485,436
    
    
    ¥
    46,789
    
    
    ¥
    69,471
    
    
    ¥
    104,119Fair value of plan assets
    
    
    420,341
    
    
    
    29,599
    
    
    
    59,089
    
    
    
    92,401
 Components of net periodic benefit cost and other amounts recognized in other comprehensive income
(loss)
  Japanese plans
    
    Foreign plansYears ended December 31
    
    Years ended December 312008
    
    2007
    
    2006
    
    2008
    
    2007
    
    2006(Millions of yen)Service cost
    
    ¥
    20,786
    
    
    ¥
    20,161
    
    
    ¥
    23,916
    
    
    ¥
    3,141
    
    
    ¥
    4,016
    
    
    ¥
    3,483Interest cost
    
    
    12,253
    
    
    
    11,888
    
    
    
    13,411
    
    
    
    4,991
    
    
    
    4,947
    
    
    
    3,898Expected return on plan assets
    
    
    (19,721
    )
    
    
    (21,148
    )
    
    
    (21,705
    )
    
    
    (5,519
    )
    
    
    (5,427
    )
    
    
    (4,494
    )Amortization of net transition obligation
    
    
    722
    
    
    
    722
    
    
    
    345
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service credit
    
    
    (13,373
    )
    
    
    (13,479
    )
    
    
    (7,436
    )
    
    
    (271
    )
    
    
    (86
    )
    
    
    (113
    )Amortization of actuarial loss
    
    
    7,068
    
    
    
    4,868
    
    
    
    3,377
    
    
    
    898
    
    
    
    887
    
    
    
    402¥
    7,735
    
    
    ¥
    3,012
    
    
    ¥
    11,908
    
    
    ¥
    3,240
    
    
    ¥
    4,337
    
    
    ¥
    3,176
 83




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12.
    
    Employee Retirement and Severance Benefits (continued)
  Japanese plans
    
    Foreign plansYears ended December 31
    
    Years ended December 312008
    
    2007
    
    2008
    
    2007(Millions of yen)Current year actuarial (gain) loss
    
    ¥
    111,862
    
    
    ¥
    32,321
    
    
    ¥
    9,451
    
    
    ¥
    (149)Amortization of actuarial loss
    
    
    (7,068)
    
    
    
    (4,868)
    
    
    
    (898)
    
    
    
    (887)Prior service credit due to amendments
    
    
    (204)
    
    
    
    (101,620)
    
    
    
    (86)
    
    
    
    Amortization of prior service credit
    
    
    13,373
    
    
    
    13,479
    
    
    
    271
    
    
    
    86Amortization of net transition obligation
    
    
    (722)
    
    
    
    (722)
    
    
    
    
    
    
    
    ¥
    117,241
    
    
    ¥
    (61,410)
    
    
    ¥
    8,738
    
    
    ¥
    (950)
  Japanese plans
    
    Foreign plans(Millions of yen)Net transition obligation
    
    ¥
    722
    
    
    ¥
    Prior service credit
    
    
    (13,514
    )
    
    
    (117
    )Actuarial loss
    
    
    13,249
    
    
    
    1,122
 Assumptions
  Japanese plans
    
    Foreign plansDecember 31
    
    December 312008
    
    2007
    
    2008
    
    2007Discount rate
    
    
    2.4%
    
    
    
    2.5%
    
    
    
    5.3%
    
    
    
    5.1%Assumed rate of increase in future compensation levels
    
    
    3.0%
    
    
    
    2.9%
    
    
    
    3.1%
    
    
    
    3.1%
  Japanese plans
    
    Foreign plansYears ended December 31
    
    Years ended December 312008
    
    2007
    
    2006
    
    2008
    
    2007
    
    2006Discount rate
    
    
    2.5%
    
    
    
    2.5%
    
    
    
    2.5%
    
    
    
    5.1%
    
    
    
    4.5%
    
    
    
    4.8%Assumed rate of increase in future compensation levels
    
    
    2.9%
    
    
    
    2.9%
    
    
    
    2.9%
    
    
    
    3.1%
    
    
    
    2.9%
    
    
    
    2.6%Expected long-term rate of return on plan assets
    
    
    3.7%
    
    
    
    3.9%
    
    
    
    4.5%
    
    
    
    6.5%
    
    
    
    6.0%
    
    
    
    6.4%
  Plan assets
  Japanese plans
    
    Foreign plansDecember 31
    
    Target
    
    December 31
    
    Target2008
    
    2007
    
    allocation
    
    2008
    
    2007
    
    allocationAsset category:Equity securities
    
    
    22.7
    %
    
    
    33.6
    %
    
    
    31.9
    %
    
    
    43.3
    %
    
    
    52.4
    %
    
    
    30.3
    %Debt securities
    
    
    52.0
    
    
    
    45.2
    
    
    
    46.7
    
    
    
    42.5
    
    
    
    33.8
    
    
    
    59.9Cash
    
    
    0.6
    
    
    
    1.1
    
    
    
    0.1
    
    
    
    1.3
    
    
    
    
    
    
    
    1.6Life insurance company general accounts
    
    
    23.8
    
    
    
    19.5
    
    
    
    20.4
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    0.9
    
    
    
    0.6
    
    
    
    0.9
    
    
    
    12.9
    
    
    
    13.8
    
    
    
    8.2100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 84




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##### Table of Contents



12.
    
    Employee Retirement and Severance Benefits (continued)
 Canons investment policies are designed to ensure adequate plan assets are available to provide
future payments of pension benefits to eligible participants. Taking into account the expected
long-term rate of return on plan assets, Canon formulates a model portfolio comprised of the
optimal combination of equity securities and debt securities. Plan assets are invested in
individual equity and debt securities using the guidelines of the model portfolio in order to
produce a total return that will match the expected return on a mid-term to long-term basis. Canon
evaluates the gap between expected return and actual return of invested plan assets on an annual
basis to determine if such differences necessitate a revision in the formulation of the model
portfolio. Canon revises the model portfolio when and to the extent considered necessary to
achieve the expected long-term rate of return on plan assets.
 The plans equity securities include common stock of the Company and certain of its subsidiaries in
the amounts of ¥485 million and ¥1,257 million at December 31, 2008 and 2007, respectively.
 Contributions
 Canon expects to contribute ¥14,439 million to its Japanese defined benefit pension plans and
¥3,485 million to its foreign defined benefit pension plans for the year ending December 31, 2009.
 Estimated future benefit payments
   Japanese plans
    
    Foreign plans(Millions of yen)Year ending December 31:2009
    
    ¥
    11,779
    
    
    ¥
    1,5662010
    
    
    12,849
    
    
    
    1,7332011
    
    
    14,506
    
    
    
    1,7842012
    
    
    15,700
    
    
    
    1,9022013
    
    
    16,918
    
    
    
    1,8512014  2018
    
    
    105,706
    
    
    
    12,483
 85




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##### Table of Contents



13.
    
    Income Taxes
  Year ended December 31, 2008Japanese
    
    Foreign
    
    Total(Millions of yen)Income before income taxes and minority interests
    
    ¥
    382,299
    
    
    ¥
    98,848
    
    
    ¥
    481,147Income taxes:Current
    
    ¥
    168,428
    
    
    ¥
    24,857
    
    
    ¥
    193,285Deferred
    
    
    (34,073
    )
    
    
    1,576
    
    
    
    (32,497
    )¥
    134,355
    
    
    ¥
    26,433
    
    
    ¥
    160,788Year ended December 31, 2007Japanese
    
    Foreign
    
    Total(Millions of yen)Income before income taxes and minority interests
    
    ¥
    575,017
    
    
    ¥
    193,371
    
    
    ¥
    768,388Income taxes:Current
    
    ¥
    238,921
    
    
    ¥
    60,358
    
    
    ¥
    299,279Deferred
    
    
    (31,930
    )
    
    
    (3,091
    )
    
    
    (35,021
    )¥
    206,991
    
    
    ¥
    57,267
    
    
    ¥
    264,258Year ended December 31, 2006Japanese
    
    Foreign
    
    Total(Millions of yen)Income before income taxes and minority interests
    
    ¥
    556,759
    
    
    ¥
    162,384
    
    
    ¥
    719,143Income taxes:Current
    
    ¥
    201,022
    
    
    ¥
    54,156
    
    
    ¥
    255,178Deferred
    
    
    (73
    )
    
    
    (6,872
    )
    
    
    (6,945
    )¥
    200,949
    
    
    ¥
    47,284
    
    
    ¥
    248,233
 86




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##### Table of Contents



13.
    
    Income Taxes (continued)
   Years ended December 312008
    

2007
    

2006Japanese statutory income tax rate
    
    
    40.0
    %
    
    
    40.0
    %
    
    
    40.0
    %Increase (reduction) in income taxes resulting from:Expenses not deductible for tax purposes
    
    
    0.5
    
    
    
    0.3
    
    
    
    0.3Income of foreign subsidiaries taxed at lower than Japanese statutory tax rate
    
    
    (2.6
    )
    
    
    (2.8
    )
    
    
    (2.1
    )Tax credit for research and development expenses
    
    
    (4.6
    )
    
    
    (4.5
    )
    
    
    (4.1
    )Other
    
    
    0.1
    
    
    
    1.4
    
    
    
    0.4Effective income tax rate
    
    
    33.4
    %
    
    
    34.4
    %
    
    
    34.5
    %
  December 312008
    

2007(Millions of yen)Prepaid expenses and other current assets
    
    ¥
    96,613
    
    
    ¥
    79,846Other assets
    
    
    130,378
    
    
    
    68,178Other current liabilities
    
    
    (2,491
    )
    
    
    (4,506
    )Other noncurrent liabilities
    
    
    (29,075
    )
    
    
    (28,157
    )¥
    195,425
    
    
    ¥
    115,361
  December 312008
    

2007(Millions of yen)Deferred tax assets:Inventories
    
    ¥
    36,817
    
    
    ¥
    17,359Accrued business tax
    
    
    5,183
    
    
    
    11,555Accrued pension and severance cost
    
    
    51,713
    
    
    
    16,336Research and
development  costs capitalized for tax purposes
    
    
    41,661
    
    
    
    42,434Property, plant and equipment
    
    
    58,682
    
    
    
    53,487Accrued expenses
    
    
    27,748
    
    
    
    27,903Net operating losses carried forward
    
    
    6,745
    
    
    
    4,080Other
    
    
    44,894
    
    
    
    34,448273,443
    
    
    
    207,602Less valuation allowance
    
    
    (10,817
    )
    
    
    (9,327
    )Total deferred tax assets
    
    
    262,626
    
    
    
    198,275Deferred tax liabilities:Undistributed earnings of foreign subsidiaries
    
    
    (10,407
    )
    
    
    (13,566
    )Net unrealized gains on securities
    
    
    (607
    )
    
    
    (4,440
    )Tax deductible reserve
    
    
    (8,119
    )
    
    
    (8,574
    )Financing lease revenue
    
    
    (31,035
    )
    
    
    (26,892
    )Prepaid pension and severance cost
    
    
    (2,644
    )
    
    
    (10,604
    )Other
    
    
    (14,389
    )
    
    
    (18,838
    )Total deferred tax liabilities
    
    
    (67,201
    )
    
    
    (82,914
    )Net deferred tax assets
    
    ¥
    195,425
    
    
    ¥
    115,361
 87




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##### Table of Contents



13.
    
    Income Taxes (continued)
    (Millions of yen)Within one year
    
    ¥
    233After one year through five years
    
    
    2,945After five years through ten years
    
    
    10,293Indefinite period
    
    
    4,851Total
    
    ¥
    18,322
    Years ended December 312008
    
    2007(Millions of yen)Balance at beginning of year
    
    ¥
    15,791
    
    
    ¥
    16,087Additions for tax positions of the current year
    
    
    8,700
    
    
    
    994Additions for tax positions of prior years
    
    
    1,354
    
    
    
    1,902Reductions for tax positions of prior years
    
    
    (8,512
    )
    
    
    (1,340
    )Lapse of the applicable statute of limitations
    
    
    
    
    
    
    (1,311
    )Settlements with tax authorities
    
    
    (1,208
    )
    
    
    (322
    )Other
    
    
    (3,436
    )
    
    
    (219
    )Balance at end of year
    
    ¥
    12,689
    
    
    ¥
    15,791
     88




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##### Table of Contents



14.
    
    Common Stock
  15.
    
    Legal Reserve and Retained Earnings
     16.
    
    Other Comprehensive Income (Loss)
  Years ended December 312008
    
    2007
    
    2006(Millions of yen)Foreign currency translation adjustments:Balance at beginning of year
    
    ¥
    22,796
    
    
    ¥
    22,858
    
    
    ¥
    (25,772
    )Adjustments for the year
    
    
    (258,764
    )
    
    
    (62
    )
    
    
    48,630Balance at end of year
    
    
    (235,968
    )
    
    
    22,796
    
    
    
    22,858Net unrealized gains and losses on securities:Balance at beginning of year
    
    
    6,287
    
    
    
    8,065
    
    
    
    6,073Adjustments for the year
    
    
    (5,152
    )
    
    
    (1,778
    )
    
    
    1,992Balance at end of year
    
    
    1,135
    
    
    
    6,287
    
    
    
    8,065Net gains and losses on derivative instruments:Balance at beginning of year
    
    
    (849
    )
    
    
    (1,663
    )
    
    
    (1,174
    )Adjustments for the year
    
    
    2,342
    
    
    
    814
    
    
    
    (489
    )Balance at end of year
    
    
    1,493
    
    
    
    (849
    )
    
    
    (1,663
    )Minimum pension liability adjustments:Balance at beginning of year
    
    
    
    
    
    
    
    
    
    
    (7,339
    )Adjustments for the year
    
    
    
    
    
    
    
    
    
    
    (3,575
    )Adjustment to initially apply SFAS 158
    
    
    
    
    
    
    
    
    
    
    10,914Balance at end of year
    
    
    
    
    
    
    
    
    
    
    Pension liability adjustments:Balance at beginning of year
    
    
    6,436
    
    
    
    (26,542
    )
    
    
    Adjustments for the year
    
    
    (65,916
    )
    
    
    32,978
    
    
    
    Adjustment to initially apply SFAS 158
    
    
    
    
    
    
    
    
    
    
    (26,542
    )Balance at end of year
    
    
    (59,480
    )
    
    
    6,436
    
    
    
    (26,542
    )Total accumulated other comprehensive income (loss):Balance at beginning of year
    
    
    34,670
    
    
    
    2,718
    
    
    
    (28,212
    )Adjustments for the year
    
    
    (327,490
    )
    
    
    31,952
    
    
    
    46,558Adjustment to initially apply SFAS 158
    
    
    
    
    
    
    
    
    
    
    (15,628
    )Balance at end of year
    
    ¥
    (292,820
    )
    
    ¥
    34,670
    
    
    ¥
    2,718
 89




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##### Table of Contents



16.
    
    Other Comprehensive Income (Loss) (continued)
  Years ended December 31Before-tax amount
    
    Tax (expense) or benefit
    
    Net-of-tax amount(Millions of yen)2008:Foreign currency translation adjustments
    
    ¥
    (264,657
    )
    
    
    ¥  5,893
    
    
    ¥
    (258,764
    )Net unrealized gains and losses on securities:Amount arising during the year
    
    
    (15,957
    )
    
    
    6,532
    
    
    
    (9,425
    )Reclassification adjustments for gains and losses realized in net income
    
    
    7,374
    
    
    
    (3,101
    )
    
    
    4,273Net change during the year
    
    
    (8,583
    )
    
    
    3,431
    
    
    
    (5,152
    )Net gains and losses on derivative instruments:Amount arising during the year
    
    
    23,131
    
    
    
    (9,248
    )
    
    
    13,883Reclassification adjustments for gains and losses realized in net income
    
    
    (19,229
    )
    
    
    7,688
    
    
    
    (11,541
    )Net change during the year
    
    
    3,902
    
    
    
    (1,560
    )
    
    
    2,342Pension liability adjustments:Amount arising during the year
    
    
    (106,937
    )
    
    
    43,595
    
    
    
    (63,342
    )Reclassification adjustments for gains and losses realized in net income
    
    
    (4,556
    )
    
    
    1,982
    
    
    
    (2,574
    )Net change during the year
    
    
    (111,493
    )
    
    
    45,577
    
    
    
    (65,916
    )Other comprehensive income (loss)
    
    ¥
    (380,831
    )
    
    
    ¥53,341
    
    
    ¥
    (327,490
    )2007:Foreign currency translation adjustments
    
    
    ¥    (370
    )
    
    
    ¥      308
    
    
    
    ¥      (62
    )Net unrealized gains and losses on securities:Amount arising during the year
    
    
    (7,237
    )
    
    
    3,037
    
    
    
    (4,200
    )Reclassification adjustments for gains and losses realized in net income
    
    
    (293
    )
    
    
    2,715
    
    
    
    2,422Net change during the year
    
    
    (7,530
    )
    
    
    5,752
    
    
    
    (1,778
    )Net gains and losses on derivative instruments:Amount arising during the year
    
    
    590
    
    
    
    (236
    )
    
    
    354Reclassification adjustments for gains and losses realized in net income
    
    
    772
    
    
    
    (312
    )
    
    
    460Net change during the year
    
    
    1,362
    
    
    
    (548
    )
    
    
    814Pension liability adjustments:Amount arising during the year
    
    
    62,768
    
    
    
    (26,502
    )
    
    
    36,266Reclassification adjustments for gains and losses realized in net income
    
    
    (5,766
    )
    
    
    2,478
    
    
    
    (3,288
    )Net change during the year
    
    
    57,002
    
    
    
    (24,024
    )
    
    
    32,978Other comprehensive income (loss)
    
    
    ¥50,464
    
    
    
    ¥(18,512
    )
    
    
    ¥31,9522006:Foreign currency translation adjustments
    
    
    ¥49,518
    
    
    
    ¥   (888
    )
    
    
    ¥48,630Net unrealized gains and losses on securities:Amount arising during the year
    
    
    3,708
    
    
    
    (1,502
    )
    
    
    2,206Reclassification adjustments for gains and losses realized in net income
    
    
    (388
    )
    
    
    174
    
    
    
    (214
    )Net change during the year
    
    
    3,320
    
    
    
    (1,328
    )
    
    
    1,992Net gains and losses on derivative instruments:Amount arising during the year
    
    
    (7,126
    )
    
    
    2,858
    
    
    
    (4,268
    )Reclassification adjustments for gains and losses realized in net income
    
    
    6,309
    
    
    
    (2,530
    )
    
    
    3,779Net change during the year
    
    
    (817
    )
    
    
    328
    
    
    
    (489
    )Minimum pension liability adjustments
    
    
    (4,391
    )
    
    
    816
    
    
    
    (3,575
    )Other comprehensive income (loss)
    
    
    ¥47,630
    
    
    
    ¥(1,072
    )
    
    
    ¥46,558
 90




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##### Table of Contents



17.
    
    Stock-Based Compensation
     Expected term of option (in years)
    
    
    4.0Expected volatility
    
    
    37.39
    %Dividend yield
    
    
    2.10
    %Risk-free interest rate
    
    
    0.95
    %
  Weighted-averageWeighted-average
    
    remaining
    
    AggregateShares
    
    exercise price
    
    contractual term
    
    intrinsic value(Yen)
    
    (Year)
    
    (Millions of yen)Outstanding at January 1, 2008
    
    
    
    
    
    
    Granted
    
    
    592,000
    
    
    
    ¥5,502Forfeited
    
    
    
    
    
    
    Outstanding at December 31, 2008
    
    
    592,000
    
    
    
    ¥5,502
    
    
    
    3.3
    
    
    ¥
    
  91




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##### Table of Contents



18.
    
    Net Income per Share
  Years ended December 312008
    
    2007
    
    2006(Millions of yen)Net income
    
    
    ¥309,148
    
    
    
    ¥488,332
    
    
    
    ¥455,325Effect of dilutive securities:1.30% Japanese yen convertible
debentures, due 2008
    
    
    2
    
    
    
    4
    
    
    
    8Diluted net income
    
    
    ¥309,150
    
    
    
    ¥488,336
    
    
    
    ¥455,333(Number of shares)Average common shares outstanding
    
    
    1,255,626,490
    
    
    
    1,293,295,680
    
    
    
    1,331,542,074Effect of dilutive securities:1.30% Japanese yen
convertible debentures, due
2008
    
    
    79,929
    
    
    
    221,751
    
    
    
    474,796Diluted common shares outstanding
    
    
    1,255,706,419
    
    
    
    1,293,517,431
    
    
    
    1,332,016,870(Yen)Net income per share:Basic
    
    
    ¥246.21
    
    
    
    ¥377.59
    
    
    
    ¥341.95Diluted
    
    
    246.20
    
    
    
    377.53
    
    
    
    341.84
  92




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##### Table of Contents



19.
    
    Derivatives and Hedging Activities
 Risk management policy
  Foreign currency exchange rate risk management
  Cash flow hedge
   Derivatives not designated as hedges
   December 312008
    
    2007(Millions of yen)To sell foreign currencies
    
    
    ¥350,959
    
    
    
    ¥697,240To buy foreign currencies
    
    
    35,247
    
    
    
    46,897
 93




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##### Table of Contents



20.
    
    Commitments and Contingent Liabilities
 Commitments
    Year ending December 31:
    
    (Millions of yen)2009
    
    
    ¥14,7262010
    
    
    11,1272011
    
    
    7,0902012
    
    
    5,1052013
    
    
    3,348Thereafter
    
    
    8,440Total future minimum lease payments
    
    
    ¥49,836
 Guarantees
    Years ended December 312008
    
    2007(Millions of yen)Balance at beginning of year
    
    
    ¥ 20,138
    
    
    
    ¥ 18,144Addition
    
    
    30,644
    
    
    
    31,053Utilization
    
    
    (26,846
    )
    
    
    (26,199
    )Other
    
    
    (6,564
    )
    
    
    (2,860
    )Balance at end of year
    
    
    ¥ 17,372
    
    
    
    ¥ 20,138
 94




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##### Table of Contents



20.
    
    Commitments and Contingent Liabilities (continued)
 Legal proceedings
     95




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##### Table of Contents



21.
    
    Disclosures about the Fair Value of Financial Instruments and Concentrations of Credit Risk
 Fair value of financial instruments
  December 312008
    
    2007Carryingamount
    
    Estimatedfair value
    
    Carryingamount
    
    Estimatedfair value(Millions of yen)Long-term debt, including
current installments
    
    ¥
    (13,743
    )
    
    ¥
    (13,727
    )
    
    ¥
    (24,109
    )
    
    ¥
    (24,714
    )Foreign exchange contracts:Assets
    
    
    10,516
    
    
    
    10,516
    
    
    
    806
    
    
    
    806Liabilities
    
    
    (678
    )
    
    
    (678
    )
    
    
    (12,335
    )
    
    
    (12,335
    )
  Long-term debt
  Foreign exchange contracts
  Limitations
  Concentrations of credit risk
  96




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##### Table of Contents



22.
    
    Fair Value Measurements
  Level 1 -
    Inputs are quoted prices in active markets for identical assets or liabilities.Level 2 -
    Inputs are quoted prices for similar assets or liabilities in active markets, quoted
prices for identical or similar assets or liabilities in markets that are not active,
inputs other than quoted prices that are observable, and inputs that are derived principally
from or corroborated by observable market data by correlation or other means.Level 3 -
    Inputs are derived from valuation techniques in which one or more significant
inputs or value drivers are unobservable, which reflect the reporting entitys own
assumptions about the assumptions that market participants would use in establishing a price.
 Assets
and Liabilities Measured at Fair Value on a Recurring Basis
  Level 1
    
    Level 2
    
    Level 3
    

Total(Millions of yen)Assets:Cash and cash equivalents
    
    ¥
    
    
    
    ¥
    194,030
    
    
    ¥
    
    
    
    ¥
    194,030Investments
    
    
    14,108
    
    
    
    981
    
    
    
    1,516
    
    
    
    16,605Derivatives
    
    
    
    
    
    
    10,516
    
    
    
    
    
    
    
    10,516Total assets
    
    ¥
    14,108
    
    
    ¥
    205,527
    
    
    ¥
    1,516
    
    
    ¥
    221,151Liabilities:Derivatives
    
    ¥
    
    
    
    ¥
    678
    
    
    ¥
    
    
    
    ¥
    678Total liabilities
    
    ¥
    
    
    
    ¥
    678
    
    
    ¥
    
    
    
    ¥
    678
    (Millions of yen)Balance at beginning of year
    
    ¥
    1,889Total gains or losses (realized or unrealized):Included in earnings
    
    
    (559)Included in other comprehensive income (loss)
    
    
    (8)Purchases, issuances, and settlements
    
    
    194Balance at end of year
    
    ¥
    1,516
  Assets
and Liabilities Measured at Fair Value on a Nonrecurring Basis
  97




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Balance at
    
    
    Addition-
    
    
    Deduction-
    
    
    
    
    
    
    Balancebeginning of
    
    
    charged to
    
    
    bad debts
    
    
    Translation
    
    
    at end ofperiod
    
    

income
    
    

written off
    
    

adjustments
    
    

period(Millions of yen)Year ended December 31, 2008:Allowance for doubtful receivables
    
    ¥
    14,547
    
    
    ¥
    1,304
    
    
    ¥
    3,618
    
    
    ¥
    (2,915
    )
    
    ¥
    9,318Year ended December 31, 2007:Allowance for doubtful receivables
    
    ¥
    13,849
    
    
    ¥
    3,527
    
    
    ¥
    2,978
    
    
    ¥
    149
    
    
    ¥
    14,547Year ended December 31, 2006:Allowance for doubtful receivables
    
    ¥
    11,728
    
    
    ¥
    3,384
    
    
    ¥
    2,058
    
    
    ¥
    795
    
    
    ¥
    13,849
 98




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##### Table of Contents



Item 18. Financial Statements
  
 Item 19. Exhibits
  1.1
    
    Articles of Incorporation of Canon Inc. (Translation)1.2
    
    Regulations of the Board of Directors of Canon Inc. (Translation), incorporated by reference
from the annual report on Form 20-F (Commission file number 0-15122) filed on March 28, 20082
    
    Regulations for Handling of Shares of Canon Inc. (Translation)8
    
    List of Significant Subsidiaries (See Organizational Structure in Item 4.C. of this Form 20-F)11.1
    
    Canon Group Code of Conduct (Translation), incorporated by reference from the annual report on
Form20-F (Commission file number 0-15122) filed on June 10, 200411.2
    
    Code of Ethics (Supplement to The Canon Group Code of Conduct) (Translation), incorporated by
reference from the annual report on Form20-F (Commission file number 0-15122) filed on June 10,
200412
    
    Certifications of Chairman and CEO and Executive Vice President and CFO pursuant to Section 302
of the Sarbanes-Oxley Act13
    
    Certification of Chairman and CEO and Executive Vice President and CFO pursuant to Section 906
of the Sarbanes-Oxley Act
 99




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##### Table of Contents



CANON INC.
(Registrant)By:
    /s/ Toshizo TanakaToshizo TanakaExecutive Vice President and CFOCanon Inc.30-2, Shimomaruko 3-chome,Ohta-ku, Tokyo 146-8501, Japan  100




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##### Table of Contents



EXHIBIT INDEX
 Exhibit number
    
    TitleExhibit 1.1
    
    Articles of Incorporation of Canon Inc. (Translation)Exhibit 1.2
    

Regulations
Of the Board of Directors of Canon Inc. (Translation), incorporated
by reference from the annual report on Form 20-F (Commission
file number 0-15122) filed on March 28, 2008Exhibit 2
    
    Regulations for Handling of Shares of Canon Inc. (Translation)Exhibit 8
    
    List of Significant Subsidiaries (See Organizational Structure in Item 4.C. of this Form 20-F)Exhibit 11.1
    
    Canon
Group Code of Conduct (Translation) , incorporated by reference from
the annual report on Form20-F (Commission file number
0-15122) filed
on June 10, 2004Exhibit 11.2
    
    Code
of Ethics (Supplement to The Canon Group Code of Conduct)
(Translation), incorporated by reference from the annual report on
Form20-F (Commission file number 0-15122) filed on June 10,
2004Exhibit 12
    
    Certifications of Chairman and CEO and Executive Vice President and CFO pursuant to Section 302 of the Sarbanes-Oxley ActExhibit 13
    
    Certification of Chairman and CEO and Executive Vice President and CFO pursuant to Section 906 of the Sarbanes-Oxley Act
 101