SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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



                                   FORM 20-F


     (      )           REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
                         OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
                                              OR
     (  X   )            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                            OF THE SECURITIES EXCHANGE ACT OF 1934
                          For the fiscal year ended December 31, 2000
                      ---------------------------------------------------
                                Commission file number 0-12131
                      ---------------------------------------------------
                                              OR
     (      )          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                            OF THE SECURITIES EXCHANGE ACT OF 1934
                        For the transition period from ______ to ______



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


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


                                     JAPAN
                (Jurisdiction of incorporation or organization)

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

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


Title of each class           Name of each exchange on which registered
-------------------           -----------------------------------------
           None                                  None




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

               Common stock* par value 50 Japanese yen per share
                                (Title of Class)

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

         Securities for which there is a reporting obligation pursuant
                          to Section 15(d) of the Act.
               Common stock* par value 50 Japanese yen per share
                                (Title of Class)

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

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

<PAGE>

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

As of December 31, 2000, 875,627,023 shares of common stock par value Yen50
per share and 50,000,000 ADSs were outstanding.

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

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

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

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

<PAGE>



                               TABLE OF CONTENTS

                                                                          Page

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


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

                                     PART I

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


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


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

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

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

      A.  History and development of the Company.............................4
      B.  Business overview..................................................5
          Products...........................................................6
          Marketing and distribution........................................12
          Service...........................................................12
          Net sales by product group and region of origination..............13
          Sources of supply.................................................14
          Environmental protection..........................................14
      C.  Organizational structure..........................................15
      D.  Property, plants and equipment....................................15

Item 5. Operating and Financial Review and Prospects........................18

      A.  Operating Results.................................................18
          General...........................................................18
          Overview..........................................................18
          Consolidated result of operations.................................18
             Fiscal 2000 compared with fiscal 1999..........................18
             Fiscal 1999 compared with fiscal 1998..........................23
             Foreign operations and foreign currency transactions...........27
      B.  Liquidity and capital resources...................................27
          Liquidity.........................................................27
          Capital resources.................................................27
      C.  Research and development, patents and licenses, etc...............28
      D.  Trend information.................................................29
          New Accounting Standards..........................................29
          Looking forward...................................................29

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

      A.  Directors and senior management...................................30
      B.  Compensation......................................................34
      C.  Board practices...................................................35
      D.  Employees.........................................................35
      E.  Share ownership...................................................36

                                       i


<PAGE>

Item 7. Major Shareholders and Related Party Transactions...................37

      A.  Major shareholders................................................37
      B.  Related party transactions........................................37
      C.  Interests of experts and counsel..................................37

Item 8. Financial Information...............................................38

      A.  Consolidated statements and other financial information...........38
          Consolidated statements...........................................38
          Legal proceedings.................................................38
          Dividend policy...................................................38
      B.  Significant changes...............................................38

Item 9. The Offer and Listing...............................................39

      A.  Offer and listing details.........................................39
          Trading in domestic markets.......................................39
          Trading in foreign markets........................................39
      B.  Plan of distribution..............................................40
      C.  Markets...........................................................40

Item 10. Additional Information.............................................41

      A.  Share capital.....................................................41
      B.  Memorandum and articles of association............................41
      C.  Material contracts................................................41
      D.  Exchange controls.................................................41
      E.  Taxation..........................................................42
      F.  Dividends and paying agents.......................................43
      G.  Statement by experts..............................................43
      H.  Documents on display..............................................43
      I.  Subsidiary information............................................43

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

          Market risk exposures.............................................43
          Equity price risk.................................................43
          Foreign exchange risk.............................................44
          Interest rate risk................................................45

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

                                    PART II

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


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


Item 15. [Reserved].........................................................47


Item 16. [Reserved].........................................................47

                                       ii


<PAGE>

                                    PART III

Item 17. Financial Statements...............................................48

          Independent Auditors' Report......................................49
          Consolidated Balance Sheets.......................................50
          Consolidated Statements of Income.................................51
          Consolidated Statements of Stockholders' Equity...................52
          Consolidated Statements of Cash Flows.............................53
          Notes to Consolidated Financial Statements........................54
          Valuation and Qualifying Accounts.................................76

Item 18. Financial Statements...............................................77


Item 19. Financial Statements and Exhibits..................................77


SIGNATURES..................................................................78


EXHIBIT INDEX...............................................................79


REGULATION FOR HANDLING OF SHARES OF CANON INC..............................80

                                      iii

<PAGE>

CERTAIN DEFINED TERMS, CONVENTIONS AND PRESENTATION OF FINANCIAL INFORMATION

All information contained in this Report is as of December 31, 2000 unless
otherwise specified.

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

On March 30, 2001, the noon buying rate for yen in New York City as reported
by the Federal Reserve Bank of New York was Yen125.54 = U.S.$1.

The company's fiscal year end is December 31. In this Annual Report "fiscal
2000" refers to the Company's fiscal year ended December 31, 2000, and other
fiscal years of the Company are referred to in a corresponding manner.


FORWARD-LOOKING INFORMATION

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

<PAGE>

                                     PART I

Item 1. Identity of Directors, Senior Management and Advisers

     Not applicable.

Item 2. Offer Statistics and Expected Timetable

     Not applicable.

Item 3. Key Information

     A. Selected financial data

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

<TABLE>
Selected financial data:                2000               1999               1998               1997               1996
------------------------           --------------    ---------------    ---------------    ---------------    ---------------
                                            (Millions of yen except average number of shares and per share data)
<S>                                <C>               <C>                <C>                <C>                <C>
Net sales..................        Yen  2,781,303    Yen   2,622,265    Yen   2,826,269    Yen   2,761,025    Yen   2,558,227
Operating profit...........               245,999            176,056            260,778            274,034            221,036
Net income.................               134,088             70,234            109,569            118,813             94,177
Advertising................                67,840             67,544             76,911             75,800             68,354
Research and development...               194,552            177,922            176,967            170,793            150,085
Depreciation...............               144,043            155,682            159,888            137,777            117,263
Capital expenditure........               170,986            200,386            221,401            219,779            176,357
Long-term debt.............               142,925            165,277            180,320            226,889            192,254
Common stock...............               164,796            163,969            163,033            160,411            150,565
Stockholders' equity.......             1,298,914          1,202,003          1,155,520          1,109,511          1,007,434
Total assets...............             2,832,125          2,587,532          2,728,329          2,872,779          2,644,452

Average number of shares
 (Thousands)...............               872,606            870,699            868,916            862,664            846,224

Per share data:
Net income:
 Basic..........................   Yen     153.66    Yen       80.66    Yen      126.10    Yen      137.73    Yen      111.29
 Diluted........................           151.51              79.50             123.93             134.60             106.96
Cash dividends declared.........            21.00              17.00              17.00              17.00              15.00
Cash dividends declared (US$)...   $        0.179    $         0.164    $         0.134    $         0.134    $         0.128
</TABLE>

                                        2


<PAGE>

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

<TABLE>
Yen exchange rates per U.S. dollar:             Average          Term end         High           Low
-----------------------------------           -----------      -----------    -----------    -----------
<S>                                            <C>             <C>              <C>            <C>
1996.......................................   Yen  109.31      Yen  115.77    Yen  103.92    Yen  116.13
1997.......................................        121.85           130.45         111.42         131.08
1998.......................................        130.88           113.08         113.08         147.14
1999.......................................        112.79           102.16         101.53         124.45
2000-Year..................................        108.37           114.35         101.70         114.62
     -1(st) half...........................                         106.14         101.70         111.11
     -July.................................                         109.68         105.64         109.68
     -Aug..................................                         106.66         106.20         109.52
     -Sept.................................                         107.90         105.10         107.94
     -Oct..................................                         109.15         107.58         109.30
     -Nov..................................                         110.93         107.30         111.38
     -Dec..................................                         114.35         110.42         114.62
2001-Jan...................................                         116.39         114.26         118.35
     -Feb..................................                         117.28         114.88         117.62
     -Mar..................................                         125.54         117.33         125.54
</TABLE>

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

     B. Capitalization and indebtedness

          Not applicable.

     C. Reasons for the offer and use of proceeds

          Not applicable.

     D. Risk factors

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

Economic and Foreign Exchange Rates

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

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

Industry and Business

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

      o   If we fail to continue developing and marketing products that
          incorporate new technology on a timely basis, our performance will
          be adversely affected.

      o   Canon sells laser beam printers on an original equipment
          manufacturing (OEM) basis to Hewlett-Packard Co. Such sales
          constituted approximately 20% of consolidated net sales for the year
          ended December 31, 2000. Canon's operating results could be
          significantly and adversely affected by a reduction or loss of that
          business.

                                       3

<PAGE>

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

Financial

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

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

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

Item 4. Information on the Company

     A. History and development of the Company

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

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

     In the late 50s, Canon entered the business machines field utilizing
technology obtained through the development of photographic and optical
products. With the successful introduction of electronic calculators in 1964,
Canon continued to expand its operations to include plain paper copying
machines, faxes, laser beam printers, bubble jet printers, computers, video
camcorders and digital cameras.

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

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

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

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

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

      o   On September 14, 2000, Canon began listing its American Depository
          Receipts (ADRs) on the New York Stock Exchange (NYSE).

                                       4

<PAGE>

     Canon is in the process of setting up a new headquarters building in
Shimomaruko Headquarters, Tokyo, Japan and a new manufacturing affiliate in
Hanoi, Vietnam. Canon currently plans to open these new facilities in 2002.

     B. Business overview

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

     Canon sells its products principally under the Canon brand name and through
sales subsidiaries. These subsidiaries are responsible for marketing and
distribution to retail dealers in an assigned territory. Approximately 69% of
the Company's consolidated net sales in fiscal 2000 were generated outside
Japan; approximately 34% in the Americas, 27% in Europe and 8% in other areas.

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

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

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

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

      o   In 1983, Canon developed the compact laser beam printer;

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

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

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

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

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

      o   In 1997, Canon developed the liquid crystal display (LCD) color
          filter utilizing Canon's original bubble jet technology; and

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

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

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

     As a concerned member of the world community, Canon emphasizes recycling,
and has increased its use of clean energy sources and cleaner manufacturing
processes. Canon has also adopted programs to collect and recycle used

                                       5

<PAGE>

cartridges and to refurbish used copy machines. In addition, Canon has
completely removed certain environmentally unfriendly chemicals from its
manufacturing processes.

Products

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

     Business machines

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

     Copying machines

     Canon manufactures, markets and services a wide range of copying machines,
including analog copying machines in its NP series that utilize alternative
technology to the xerographic system; digital copying machines in its GP series;
full-color digital copying machines in its CLC series and personal copying
machines in its PC series.

     NP series analog copying machines. Developments in NP series analog copying
machines include the following.

      o   In 1990, Canon made its entry into the high-end black-and-white
          copying machine market by introducing the NP9800, an 83
          pages-per-minute (ppm) copying machine.

      o   In 1997, Canon released the NP6085, an 85 ppm copying machine
          featuring a touch sensitive LCD control panel.

      o   In 1998, Canon introduced the NP6551 with a rate of 50 letter-size
          ppm and a touch sensitive LCD control panel.

      o   In 1999, Canon released the NP6035F, which can be updated with new
          features and functions as they become available, thereby furthering
          Canon's commitment to conserve the environment and reduce waste.

     GP series digital copying machines. Developments in GP series digital
copying machines include the following.

      o   In 1992, Canon entered the digital copying machine market by
          introducing the GP55.

      o   In 1996, Canon launched the GP200 series of multifunctional digital
          copying machines worldwide, using Canon's Surface Rapid Fusing
          (SURF) technology to reduce energy consumption and warm-up time, and
          incorporating copying machine, fax, scanner and printer functions.

      o   In 1999, Canon released the imageRUNNER 330 and the imageRUNNER 440
          in the United States. These are multifunctional digital copying
          machines each with a rate of 33 and 40 letter-size ppm,
          respectively. Canon introduced the imageCLASS2200 series in 1999,
          which has a rate of 16 letter-size ppm. It can be upgraded to
          include network printing, faxing, and scanning functions.

      o   In 2000, Canon released the imageRUNNER 5000 and the imageRUNNER
          6000. These are high-speed, high-performance digital multifunctional
          office systems for mid- to large-size offices with a print speed of
          50 ppm and 60 ppm, respectively. Canon introduced the iR3250,
          internet-compatible, networked, multifunctional office system, which
          features color scanning and internet fax functions.

                                       6
<PAGE>

     CLC series full-color digital copying machines. Developments in CLC series
full-color digital copying machines include the following.

      o   In 1987, Canon introduced the world's first digital laser,
          full-color, plain paper copying machine and has since improved its
          line-up of color copying machines. The digital format of copying
          machines allows users to both create and reproduce full color copies.

      o   In 1998, Canon introduced the CLC2400, which realized a rate of 24
          letter-size ppm by utilizing a four-drum engine, with the four
          photosensitive drums-one each for yellow, magenta, cyan and
          black-configured in a series.

      o   In 1999, Canon launched the imageCLASS2100, with the rate of 6 ppm
          full-color A4-size copies that provides smooth and non-glossy color
          images using a new spherical toner.

      o   In 2000, Canon introduced the CP2100 series of full-color,
          multifunctional systems for office use that achieve a print speed of
          21 ppm for both color and monochrome output.

     PC series personal copying machines. Developments in PC series personal
copying machines include the following.

      o   In 1982, Canon introduced a plain paper copying machine, the
          smallest and lightest in the world at that time and the first to
          incorporate the entire imaging mechanism in a user-replaceable
          cartridge.

      o   In 1998, Canon released the PC400/420 with Surface Rapid Fusing
          system (SURF), which eliminates warm-up time.

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

     Computer peripherals

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

     LBPs. Canon's LBPs are relatively small in size and have high-quality
printing capabilities attributable to Canon's expertise in laser beam printing
and plain paper copying technologies. Our adoption of a user-replaceable toner
cartridge system containing optical components make our LBPs easy to maintain.
Most of Canon LBP sales are on an OEM basis. Developments in this area include
the following.

      o   In 1995, the LBP-730 was introduced in Japan. This model features
          the LIPS IV page description language with 600 dot-per-inch (dpi)
          resolution for data processing and Canon's on-demand fusing
          technology that reduces power consumption and warm-up time.

      o   In 1998, the LBP-840/850 with 1,200 dpi printing, 16 ppm, was
          introduced in Japan. In the overseas market, Canon released the
          LBP-1760 with a rate of 17 letter-size ppm and the C LBP 460PS, a
          full-color, A4/letter-size printer.

      o   In 1999, Canon launched the LBP910, with an output of 22 ppm,
          resolution of 1,200 dpi x 1,200 dpi with network capabilities and
          the LBP2160/2260, with 6 ppm color and 24 ppm monochrome output in
          Japan. In the overseas market, Canon released the LBP800, which has
          a rate of 8 ppm monochrome output and zero warm-up time.

      o   In 2000, Canon introduced the LBP-2200 in Japan, a high-speed,
          full-color, A3-size laser printer that delivers natural image
          quality with gloss-free output and prints 6 ppm when printing on
          A4-size paper in color, and 24 ppm when printing in monochrome.

                                       7

<PAGE>

          Overseas, Canon released the LBP-1000, which prints 10 letter-size
          ppm at 1,200 dpi x 1,200 dpi.

     BJ printers. Canon continues to incorporate its exclusive bubble jet
technology into a range of new products. Developments in this area include the
following.

      o   In 1995, Canon introduced the BJC-210 full-color desktop printer.

      o   In 1998, Canon released the BJC-5000 with a dual cartridge system,
          the first Canon bubble jet printer to be fully developed and
          produced for worldwide shipment by a subsidiary outside of Japan.

      o   In 1999, the BJ F850, featuring Micro Fine Droplet Technology and
          photo ink that make output indistinguishable from conventional
          photographs, was introduced in Japan. Canon also introduced the
          BJC-6000, with 5 ppm color and 8 ppm monochrome output, 1,440 x 720
          dpi resolution and a six colors individual ink cartridge system in
          the overseas market.

      o   In 2000, Canon introduced the BJ F870 in Japan, which provides 2400
          x 1200 resolution, high-speed photo-quality printing and higher
          resistance to the damaging effects of lights. In the Americas and
          Europe, Canon introduced the BJC-8200 for the digital photograph
          output market.

     Scanners. Canon offers entry-level (300 x 600 dpi) and mid-level (1200 x
2400 dpi) flatbed image scanners as well as film scanners for both 35mm and APS
film. Developments in this area include the following.

      o   In 1996, Canon introduced the CanoScan 300 and 600, flatbed color
          image scanners. The 300 model features a resolution of 300 x 600
          dpi, while the 600 model features 600 x 1200 dpi resolution.

      o   In 1998, the CanoScan 620P with a new contact image sensor (LED
          Indirect Exposure) and 600 dpi resolution was released.

      o   In 1999, Canon introduced the CanoScan FB 630P, featuring 600 x
          1,200 dpi/36-bit color scanning and a slim design (1.5 inches thick).

      o   In 2000, Canon introduced the CanoScan N1220U, with a compact image
          sensor, featuring 1200 dpi resolution.

     Business systems

     Business systems include fax machines, work stations and personal
computers. Also included, is micrographic equipment, document scanners and
calculators.

     Fax machines. Canon produces a broad range of fax machines, from high
performance machines for business use to small and economical machines for
personal use. Developments in this area include the following.

      o   In 1992, Canon expanded its line of desktop plain paper fax machines
          (PPFs) with built-in laser beam printers. Canon also introduced new
          PPFs with built-in bubble jet printers.

      o   In 1998, Canon introduced the MultiPASS C3500/C5500, a fax machine
          with color bubble jet printing, copying and scanning function.

      o   In 1999, Canon introduced the LASERCLASS 9000L. This machine
          features our Super G3 Dual Line Option, which allows faxes to be
          sent and received simultaneously.


                                       8
<PAGE>


      o   In 2000, Canon introduced the MultiPASS B-30, which combines color
          printing, color facsimile, color scanning, color copying and PC
          facsimile functions into a single compact device, allowing both
          economic and space savings.

     Micrographic equipment. Canon has various micrographic equipment.
Developments in this area include the following.

      o   In 1989, Canon released the Canofile 250, an electronic filing
          system featuring high-speed input and easy referencing of
          documentation through use of a magneto-optical disk (MOD).

      o   In 1992, Canon introduced the Microprinter 90, a compact
          reader-printer that displays original documents on screen and prints
          images on plain paper, to strengthen further our line of micrographic
          equipments.

      o   In 1994, Canon released the new CF510/520 computer-controlled
          electronic filing system, featuring larger easy-to-read screens and
          improved software.

     Document scanners. With the movement toward digitalization, the need to
scan documents into text data or image data is expanding. To obtain stronger
presence in the market of document scanners, Canon has been offering a wider
products line-up and pursuing higher quality. Developments in this area include
the following.

      o   In 1997, Canon released the DR-3020/3020N. This model provides speed
          of 40 ppm scanning with compact body-size and high cost-performance.

      o   In 1999, Canon introduced the DR-5080C, a high-speed (104 ppm at
          maximum) scanner with gray-scale or color scanning capability and
          user-friendly operation.

      o   In 2000, we launched the CD-4050, offering new functions such as
          network scanning. This new model also made possible to record the
          scanned image onto CD-R without using a PC.

     Work stations and personal computers. The majority of the work stations and
personal computers sold by Canon are manufactured by third parties under the
manufacturers' own brand names, while others are sold by Canon on an OEM basis.
In 1997, Canon made a strategic withdrawal from the personal computer business
in the United States.

     Cameras

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

     SLR cameras. Developments in SLR cameras include the following.

      o   In 1987, Canon introduced a new auto-focus SLR camera system called
          the Electro-Optical System (EOS) series. Canon has since added new
          models such as the inexpensive EOS Rebel, and the EOS ELAN featuring
          a unique bar-code programming function and a quiet film transport
          system.

      o   In 1998, Canon introduced the EOS-3, the first commercial
          application of the C-MOS area sensor, featuring 45-point area
          autofocus (AF) and eye-controlled focus.

      o   In 1999, Canon released the EOS Rebel 2000, entry-level model,
          featuring 7-point AF and 35-zone AE.


                                       9

<PAGE>


      o   In 2000, Canon introduced the EOS-1V, equipped with an array of
          state-of-the-art features, including 45-point high-density area AF
          and the world's fastest continuous shooting speed of 10 frames per
          second (fps), for professional users.

     L/S cameras. Canon produces various types of L/S cameras. Recent
developments in this area include the following.

      o   In 1998, Canon released the SURE SHOT 85 Zoom with 38-85mm 2.2x
          power zoom lens and 3-point, 280-step autofocus system.

      o   In 1999, Canon introduced the SURE SHOT CLASSIC 120, featuring
          38-120mm 3.2x power zoom lens and 3-point, dual-hybrid autofocus
          system, incorporating classic outlook design elements.

      o   In 2000, Canon introduced the SURE SHOT Z90W, a new 35mm compact,
          featuring a sleek body design and a wide-angle 3.2x zoom lens, as a
          successor of the popular long-selling SURE SHOT Z70W, launched in
          1995.

     APS cameras. In 1996, Canon started to produce APS cameras featuring
smaller film than 35mm film, and negatives that contain magnetically coded
information for dates, titles, and shooting conditions as well as three
additional print types. Recent developments in this area include the following.

      o   In 1997, Canon released the ELPH Jr., an L/S camera.

      o   In 1998, Canon introduced the ELPH 370Z, an L/S camera with 23-69mm
          3x power zoom lens and a 3-point autofocus system.

      o   In 1999, Canon released the ELPH 2, with 23-46mm 2x power zoom lens,
          which is smaller than the original ELPH.

      o   In 2000, Canon released the ELPH LT260, equipped with a 26-52mm 2x
          aspherical zoom lens, which incorporates the same basic product
          concept that has become synonymous with the ELPH series:
          compactness, simplicity and refined style.

     Video camcorders. Canon manufactures analog and digital video camcorders.
Recent developments in this area include the following.

      o   In 1998, Canon introduced the ZR, a digital camcorder with 11x
          optical zoom plus 44x digital zoom and an image stabilization
          system. The VISTURA with 16x optical zoom plus 64x digital zoom, a
          2.8-inch LCD display, and a shift-type optical image stabilization
          system adapted from technology used in Canon's AF EOS lenses was
          also introduced in 1998.

      o   In 1999, Canon introduced the ELURA and the GL1. The ELURA features
          12x optical zoom with 48x digital zoom, image stabilization system,
          a DV terminal, and a 2.5-inch LCD display. The GL1 is equipped with
          3CCD image sensors, 20x optical zoom with 100x digital zoom, image
          stabilization system, DV terminal, and a 2.5-inch LCD display.

      o   In 2000, Canon released the ZR10, with compact, lightweight and a
          sophisticated body design, developed to make digital video available
          to a wider user base. The model is equipped with a full array of
          advanced features that, when combined with its affordability,
          delivers enhanced cost performance. At the midrange level, Canon
          applied its precision technologies to create the ELURA2 MC, a
          lightweight, ultracompact digital video camcorder, which features a
          stylish body design as the best-selling ELPH lineup of APS cameras.


                                       10
<PAGE>


     Digital cameras. Canon entered the digital camera market in 1996. Recent
developments in the digital camera area include the following.

      o   In 1998, Canon released the PowerShot A5, equipped with a 810,000
          pixel CCD and the PowerShot Pro70, equipped with a 1,680,000 pixel
          CCD and a 2.5x zoom lens.

      o   In 1999, Canon released the PowerShot S10 with a 2.1 megapixel CCD,
          a 2x zoom lens, USB interface and TYPE II Compact Flash memory card
          compatibility.

      o   In 2000, Canon released the PowerShot S100 DIGITAL ELPH, featuring
          an ultracompact size with the familiar design of our ELPH
          ultracompact camera for the APS with a 2.1 megapixel CCD, a 2x zoom
          lens. Canon also released professional digital SLR camera, the EOS
          D30, with a 3.25 megapixel large-area Complementary Metal Oxide
          Semiconductor (C-MOS) sensor developed by Canon, a red, green and
          blue (RGB) color filter, and a newly designed digital
          image-processing large-scale integrated circuit (LSI), making
          possible high resolution and true color reproduction, using
          EF-series interchangeable lenses for EOS cameras.

     Optical and other products

     Canon's optical products include semiconductor production equipments,
broadcasting lenses and medical equipments.

     Semiconductor production equipment. Canon manufactures steppers and
aligners, tools necessary for semiconductor chip production. Recent developments
in this area include the following.

      o   In 1998, Canon introduced the FPA-3000EX5, a Krypton Fluoride (KrF)
          excimer-laser stepper for large-scale production of 64Mb and 256Mb
          DRAM. In 1998, Canon also introduced the FPA-5000ES2, a KrF
          excimer-laser scanning stepper featuring linewidth patterning below
          0.18-microns, which supports large-scale semiconductor production on
          300-mm silicon wafers.

      o   In 1999, Canon introduced the FPA-5000AS1, an Argon Fluoride (ArF)
          excimer-laser scanning stepper permitting 0.13-microns linewidth for
          1Gb-class DRAMs and 1GHz-class microprocessor development on either
          200 or 300mm wafer substrates. In 1999, Canon also introduced the
          FPA-3000EX6, a KrF excimer-laser stepper for large-scale production
          of 256Mb DRAMs on 200mm wafers.

      o   In 2000, Canon introduced the FPA-5000ES2+, a KrF excimer-laser
          scanning stepper featuring 0.15-micron linewidth for large-scale
          production of 256Mb DRAMs and next-generation microprocessor devices
          on either 200mm or 300mm wafer substrates.

     Broadcasting lenses and medical equipment. Optical products also include
broadcasting lenses and medical equipments such as x-ray cameras, retinal
cameras, autorefractometers and image-processing equipments for computerized
diagnostic systems. Recent developments include the following.

      o   In 1998, Canon introduced the CXDI-11 x-ray digital camera, a
          medical imaging product with Canon's original large flat-panel
          sensor unit, measuring 430mm x 430mm (17inch x 17inch) and producing
          precise, high-resolution x-ray images in 4,096 gray-scale.

      o   In 1999, Canon introduced the CXDI-12 x-ray digital camera, a
          table-type adaptation of the CXDI-11.

      o   In 2000, Canon introduced the CXDI-22 x-ray digital camera with a
          removable grid permitting technologists to examine greater portions
          of the anatomy.


                                       11

<PAGE>


     Other products. Canon also manufactures electronic components which are
sold primarily to equipment manufacturers. Such products include magnetic heads
for audio and video tape recorders, micro-motors for printers and other
components.

     Canon has also been developing a cost efficient solar-power system that
incorporates amorphous silicon technology. Canon has been developing this
technology since 1977. In 1996, Canon introduced roof-integrated solar panels
which reduce material and construction costs by integrating the solar panels
onto the roof structure.

Marketing and distribution

     Canon sells its products primarily through subsidiaries with responsibility
for specific geographic areas. Each subsidiary is responsible for its own market
research as well as determination with respect to its sales channel, advertising
and promotional activities.

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

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

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

     In Southeast Asia and Oceania, Canon sells its products through
subsidiaries located in those areas. In addition, Canon sells copying machines
to independent distributors in China.

     Canon also sells laser beam printers on an OEM basis to Hewlett-Packard Co.
Hewlett-Packard Co. resells these printers under the "HP Laser Jet" name. During
the year ended December 31, 2000, such sales constituted approximately 20% of
consolidated net sales.

Service

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

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

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


                                       12


<PAGE>


Net sales by product group and region of origination

<TABLE>
                                                               Years ended December 31
                               --------------------------------------------------------------------------------------
Net sales by product group               2000                            1999                          1998
--------------------------     ------------------------       ------------------------       ------------------------
                                                        (Millions of yen except percentage data)
<S>                             <C>                 <C>          <C>              <C>          <C>              <C>
Business machines:
   Copying machines.........   Yen   823,247      29.6%       Yen   842,082      32.1%       Yen   896,641      31.7%
   Computer peripherals.....       1,045,833      37.6              965,499      36.8            1,064,304      37.7
   Business systems.........         320,071      11.5              356,350      13.6              397,272      14.0
                               -------------     ------       -------------     ------       -------------     ------
Total business machines.....       2,189,151      78.7            2,163,931      82.5            2,358,217      83.4
Cameras.....................         324,058      11.7              277,349      10.6              267,636       9.5
Optical and other products..         268,094       9.6              180,985       6.9              200,416       7.1
                               -------------     ------       -------------     ------       -------------     ------
     Total..................   Yen 2,781,303     100.0%       Yen 2,622,265     100.0%       Yen 2,826,269     100.0%
                               =============     ======       =============     ======       =============     ======
</TABLE>

<TABLE>
                                                                 Years ended December 31
                                                  -----------------------------------------------------
Net sales by region of origination                     2000               1999               1998
----------------------------------                --------------    ----------------    ---------------
                                                                    (Millions of yen)
<S>                                               <C>                <C>                <C>
Net sales to unaffiliated customers:
 Japan........................................    Yen    860,702     Yen    791,399     Yen    796,406
 Americas.....................................           933,778            912,676          1,003,683
 Europe.......................................           764,206            736,570            841,400
 Others.......................................           222,617            181,620            184,780
                                                  --------------     --------------     --------------
   Total......................................    Yen  2,781,303     Yen  2,622,265     Yen  2,826,269
                                                  ==============     ==============     ==============
Intercompany transfers to regions:
 Japan........................................    Yen  1,345,983     Yen  1,205,021     Yen  1,312,405
 Americas.....................................            11,748             14,468             21,523
 Europe.......................................             3,782              3,645              3,126
 Others.......................................           246,024            179,527            198,702
                                                  --------------     --------------     --------------
 Eliminations.................................        (1,607,537)        (1,402,661)        (1,535,756)
                                                  --------------     --------------     --------------
   Total......................................                 -                  -                  -
                                                  ==============     ==============     ==============
Total net sales and transfers:
 Japan........................................    Yen  2,206,685     Yen  1,996,420     Yen  2,108,811
 Americas.....................................           945,526            927,144          1,025,206
 Europe.......................................           767,988            740,215            844,526
 Others.......................................           468,641            361,147            383,482
                                                  --------------     --------------     --------------
 Eliminations.................................        (1,607,537)        (1,402,661)        (1,535,756)
                                                  --------------     --------------     --------------
   Total......................................    Yen  2,781,303     Yen  2,622,265     Yen  2,826,269
                                                  ==============     ==============     ==============
</TABLE>

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

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

                                       13

<PAGE>

Sources of supply

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

Environmental protection

     Canon has been developing antipollution strategies for many years. In 1993,
Canon implemented "New Principles for Environmental Assurance" to respond to
environmental concerns.

     These principles are:

       1)    to develop products, production technology and evaluation
             technology that are, and to conduct corporate activities in a
             manner that is, consistent with the principles of environmental
             conservation;

       2)    to implement environmental impact assessments prior to product
             development, and to design and manufacture products that reduce
             resource and energy consumption;

       3)    to undertake to ensure that our worldwide manufacturing processes
             are conducted in an increasingly environmentally sound manner by
             reducing waste and energy consumption in those processes;

       4)    to work together with governments on environmental strategies;

       5)    to actively support local and regional environmental protection
             organizations; and

       6)    to boost awareness of environmental conservation among Canon
             employees through training and education.

     In accordance with these guidelines, Canon has established and complies
with internal environmental standards that are stricter than those provided for
by the laws of the various nations in which Canon conducts its business.

     Canon established its Environmental Audit Department in 1993 specifically
for the purpose of conducting environmental audits and designating environmental
auditors. The Environmental Audit Department consists of a team of independent
specialists. In Japan, internal audits of 26 sites are conducted every two
years. The Environmental Audit Department is currently conducting approximately
one audit per month.

     Canon completely eliminated the use of ozone-depleting chlorofluorocarbons
in its worldwide manufacturing and production processes in 1992, and eliminated
use of trichloroethane in 1993. Canon is also working to develop technologies
which eliminate additional hazardous material from the manufacturing process.

     In addition, Canon is emphasizing product recycling and refurbishment. In
1990, Canon initiated a program whereby cartridges from Canon personal copying
machines and laser beam printers can be collected and then recycled at Canon
Dalian Business Machines, Inc., a Canon subsidiary in China. In 1996, Custom
Integrated Technology, Inc., a Canon subsidiary in Virginia, U.S., began to
refurbish used copying machines that would otherwise have been thrown away. In
1997, cartridge recycling also started at Industrial Resource Technologies,
Inc., a Canon subsidiary in Virginia and Canon Bretagne S.A., a Canon subsidiary
in France. In 1998, Canon announced plans to expand copying machine
remanufacturing activities to the Japanese market. In 1999, Canon became the
first company in Japan to adopt the Type III Eco-Label providing detailed
environmental data on the life cycle of our products. Canon also started
publishing the "Ecology Brochure" and "Environmental Report" containing detailed
information on the environmental aspects of our products and operations.


                                       14

<PAGE>


     C. Organizational structure

     The following table lists the significant subsidiaries owned by Canon.


                                                               Percentage
Name of company                  Head office location             owned
-------------------------    ------------------------------   -------------
Canon Sales Co., Inc.....    Tokyo, Japan                          50.1%

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

Canon Europa N.V.........    Amstelveen, The Netherlands          100.0%


     To increase management efficiency, Canon effected a share exchange on
November 7, 2000 to make Canon Chemicals Inc. a wholly-owned subsidiary.

     Nisca Corporation became a subsidiary of Canon when Canon Aptex Inc's
shareholding in Nisca Corporation reached 51% on December 1, 2000 as a result of
a tender offer and a third party allocation of new shares.

     D. Property, plants and equipment

     Canon's manufacturing is conducted primarily at 17 plants in Japan and 12
plants in other countries. Canon owns all of the buildings and the land on which
its plants are located, with the exception of certain leases of land and floor
space of certain of its subsidiaries. The names and locations of Canon's plants
and other facilities, their approximate floor space and the principal activities
and products manufactured therein as at December 31, 2000 are as follows:


<TABLE>
Name and location                          Floor space      Principal activities and products manufactured
-------------------------------            -----------    ---------------------------------------------------
            Domestic                      (Thousands of
                                          square feet)
<S>                                           <C>                <C>
Shimomaruko Headquarters, Tokyo                   1,621    Develop business machines and cameras; prosecute
  (corporate headquarters)                                 patents; conduct purchasing, quality assurance,
                                                           research, and planning for production engineering and
                                                           technology

Canon Research Center, Kanagawa                     137    Conduct research and development (R&D) in software
                                                           and systems

Ecology Research Center, Kyoto                       93    Conduct R&D in solar-power systems

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

Ayase Office,                                       296    Conduct R&D in semiconductors
Kanagawa

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

Fuji-Susono Research Park,                          958    Conduct R&D in electrophotographic technologies
Shizuoka
</TABLE>


                                       15

<PAGE>


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

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

Tamagawa Plant, Kanagawa                            409    Produce bubble jet printer consumables

Fukushima Plant, Fukushima                          593    Produce business machines, primarily bubble jet
                                                           printers

Toride Plant, Ibaraki                             2,459    Produce copying machines, laser beam printers and
                                                           copying machine consumables; develop business
                                                           machines

Ueno Plant, Mie                                     543    Produce copying machines and laser beam printer
                                                           consumables

Ami Plant, Ibaraki                                1,173    Produce business machines, tools, production
                                                           equipments and optical products

Utsunomiya Plant,                                 1,453    Produce camera lenses and optical products; develop
Tochigi                                                    optical products

Canon Electronics Inc. Plants,                      984    Produce electronic components, micrographic
Saitama and Gunma                                          equipments, laser beam printers and camera parts

Copyer Co., Ltd. Plants,                            351    Produce copying machines and copying machine
Tokyo, Yamansashi and Fukui                                consumables

Canon Precision Inc. Plants,                        740    Produce micro-motors, precision parts, metal mold
Tokyo, Aomori and Fukushima                                parts and laser beam printer consumables

Canon Aptex Inc. Plants,                            454    Produce copying machine parts and accessories
Ibaraki and Tokyo

Canon Chemicals Inc. Plants,                      1,388    Produce copying machine and laser beam printer
Ibaraki and Kanagawa                                       consumables

Canon Components Inc. Plant,                        734    Produce electronic components, bubble jet printer
Saitama                                                    consumables and color filters

Oita Canon Inc. Plant,                              316    Produce 35mm and APS cameras, digital video
Oita                                                       camcorders and digital cameras

Nagahama Canon Inc. Plant,                          921    Produce laser beam printers, bubble jet printers, laser
Shiga                                                      beam printer consumables and solar panels

Nippon Typewriter Co., Ltd. Plant,                1,429    Produce parts for business machines
Ibaraki

Oita Canon Material Co., Ltd. Plant,              1,164    Produce copying machine and laser beam printer
Oita                                                       consumables

Nisca Corporation Plant,                            267    Produce copying machine parts and accessories
Yamanashi
</TABLE>

                                       16
<PAGE>

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

Canon Business Machines, Inc. Plants,               264    Develop and manufacture bubble jet printers;
Costa Mesa, California, U.S. and                           manufacture copying machine supplies
Tijuana, B.C., Mexico

Canon Giessen BmbH Plant,                           359    Produce copying machines, copying machine
Giessen, Germany                                           consumables and bubble jet printer consumables

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

Canon Inc., Taiwan Plant,                           449    Develop and manufacture 35mm SLR cameras and leaf
Taiwan                                                     shutter cameras; manufacture APS cameras

Canon Opto (Malaysia) Sdn. Bhd.                     562    Produce leaf shutters, APS cameras, video camcorders
Plant Selangor, Malaysia                                   and camera lenses

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

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

Tianjin Canon Co., Ltd. Plant,                      157    Produce copying machines
Tianjin, China

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

Canon Hi-Tech (Thailand) Ltd. Plant,                830    Produce copying machines, bubble jet printers and fax
Phra Nakhon Si Ayutthaya, Thailand                         machines

Canon Engineering (Thailand) Ltd.                   128    Produce business machine part molds
Plant,
Phra Nakhon Si Ayutthaya, Thailand
</TABLE>


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

     At December 31, 2000, book value Yen9,726 of land, buildings and related
equipment were subject to mortgages securing Yen4,377 million of Canon's
indebtedness.

     Canon has plans to set up a manufacturing affiliate in Hanoi, Vietnam, for
the production of bubble jet printers. The new company, tentatively named Canon
Vietnam, will be a wholly owned subsidiary. The facility, with 355 thousands of
square feet of floor space, will be constructed within a recently opened
industrial complex. Canon expects the cost of project to amount to approximately
7 billion yen in total. Canon Vietnam is scheduled to begin operation in 2002.


                                       17


<PAGE>

Item 5. Operating and Financial Review and Prospects

     A. Operating Results

General

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

Overview

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

     On a consolidated basis, Canon divides its businesses into three product
groups: business machines, cameras and optical and other products. The business
machine product group includes copying machines, computer peripherals and
business systems. Copying machines include analog, digital, color and personal
models. Computer peripherals include mainly laser beam printers, bubble jet
printers and scanners. Business systems include fax machines, micrographic
equipments and calculators. The camera product group includes cameras, video
camcorders and digital cameras. The optical and other products product group
includes steppers and aligners for semiconductor chip production, television
broadcasting lenses and medical equipments.

     Overseas operations are significant to Canon's operating results. Overseas
operations generated 69.1% of our total net sales in fiscal 2000. Such sales are
denominated in the applicable local currency and subject to fluctuations in the
value of the yen in relation to such other currencies. Despite efforts including
to localize manufacturing, Canon believes such fluctuations have had a
significant effect on our results of operations.

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

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

Consolidated result of operations

     Fiscal 2000 compared with fiscal 1999

     Although appreciation of the yen had a negative impact in fiscal 2000,
sales increased 6.1% to Yen2,781,303 million in fiscal 2000 from Yen2,622,265
million in fiscal 1999. Net income increased 90.9% to Yen134,088 million in
fiscal 2000 from Yen70,234 million in fiscal 1999.

                                      18
<PAGE>

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

<TABLE>
                                        2000            Change         1999
                                   ---------------    ---------   --------------
                                          (Million of yen except per share
                                             amounts and percentage data)
<S>                               <C>                 <C>        <C>
Net sales.......................    Yen  2,781,303     +  6.1%   Yen  2,622,265
Operating profit................           245,999     + 39.7           176,056
Income before income taxes......           227,196     + 45.6           156,072
Net income......................           134,088     + 90.9            70,234

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

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

     Sales

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

     While the favorable global economy helped Canon expand sales, yen
appreciation had a negative impact on our operations. In fiscal 2000, the
approximate average exchange rate of the yen to the U.S. dollar was Yen108 and
to the euro was Yen99. These exchange rates reflect increases of 5% and 21%,
respectively, from fiscal 1999. In real terms, fiscal 2000 net sales increased
13.3% from fiscal 1999.

     This increase is mainly the result of strong demand for digital copying
machines in the business machine segment, a rapid expansion of the digital
camera market, and a semiconductor device demand that remained strong throughout
fiscal 2000.

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

<TABLE>
                                  2000             Change            1999
                             --------------      --------      -------------
                                   (Million of yen except percentage data)
<S>                           <C>              <C>             <C>
Business machines:
      Copying machines.....  Yen    823,247      -   2.2%      Yen   842,082
      Computer peripherals.       1,045,833      +   8.3             965,499
      Business systems.....         320,071      -  10.2             356,350
                             --------------      --------      -------------
    Total business machines       2,189,151      +   1.2           2,163,931
                             --------------      --------      -------------
Cameras....................         324,058      +  16.8             277,349
Optical and other products.         268,094      +  48.1             180,985
                             --------------      --------      -------------
      Total................  Yen  2,781,303      +   6.1%      Yen 2,622,265
                             ==============      ========      =============
</TABLE>

     Sales of business machines constituted 78.7% of consolidated net sales in
fiscal 2000. Sales of business machines increased 1.2% to Yen2,189,151 million
in fiscal 2000 from Yen2,163,931 million in fiscal 1999.

     Sales of copying machines decreased 2.2% to Yen823,247 million in fiscal
2000 from Yen842,082 million in fiscal 1999. Although copying machine sales
increased nearly 6% on a local currency basis reflecting strong worldwide

                                       19

<PAGE>

demand particularly for digital copying machines, a strong yen led to a slight
decline in these sales on a consolidated basis.

     Sales of computer peripherals increased 8.3% to Yen1,045,833 million in
fiscal 2000 from Yen965,499 million in fiscal 1999, primarily due to a strong
overseas market for laser beam printers.

     Sales of business systems decreased 10.2% to Yen320,071 million in fiscal
2000 from Yen356,350 million in fiscal 1999, primarily due to the strong yen and
intense price competition reducing sales of fax machines.

     Sales of cameras increased 16.8% to Yen324,058 million in fiscal 2000 from
Yen277,349 million in fiscal 1999, primarily due to the introduction of new
digital cameras and a rapid expansion of the market for digital cameras as well
as favorable video camcorder sales. Cameras contributed 11.7% to consolidated
net sales in fiscal 2000.

     Sales of optical and other products increased 48.1% to Yen268,094 million
in fiscal 2000 from Yen180,985 million in fiscal 1999 mainly attributable to
significant growth in stepper sales, stimulated by active capital investment by
semiconductor manufacturers in the healthy semiconductor market. Optical and
other products contributed 9.6% to consolidated net sales in fiscal 2000.

     A regional analysis indicates that net sales in fiscal 2000 increased in
each region. In Japan, overall sales increased 6.9% in fiscal 2000. In
particular, sales of bubble jet printers and digital cameras grew significantly
as a result of the introduction of attractive new products. Semiconductor
production equipment also registered substantial growth. In the U.S. market,
sales of digital copying machines, digital video camcorders and semiconductor
production equipment were especially strong. Although sales in the Americas grew
7.8% in U.S. dollar terms, the appreciation of the yen reduced the growth rate
to 2.3%. Sales in Europe grew 20.4% in euro terms. However, the stronger yen
reduced this growth rate to 3.6%. Sales of laser beam printers, digital cameras
and semiconductor production equipment mainly supported the increase. Sales in
other areas increased 28.2%, reflecting significant sales increases of
semiconductor production equipment in Korea and Taiwan, and the economic
recovery in many of the economies in these areas.

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

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

Japan.......     Yen    807,771           +   6.9%     Yen    755,704
Americas....            934,165           +   2.3             913,377
Europe......            768,169           +   3.6             741,657
Others......            271,198           +  28.2             211,527
                 --------------           --------     --------------
 Total......     Yen  2,781,303           +   6.1%     Yen  2,622,265
                 ==============           ========     ==============

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

     Earnings

     Operating profit increased 39.7% to Yen245,999 million in fiscal 2000 from
Yen176,056 million in fiscal 1999. Operating profit constituted 8.8% of net
sales in fiscal 2000. Although the appreciation of the yen had an adverse effect
on Canon's net sales by approximately Yen190,000 million, the gross profit ratio
rose from 42.9% in 1999 to 43.3% in fiscal 2000. This improvement is mainly the
result of the successful introduction of improved production methods such as the
cell production method, and also because of an increase in sales of high
value-added products.

     Selling, general and administrative expenses increased slightly to
Yen957,843 million in fiscal 2000 from Yen948,269 million in fiscal 1999.
Selling, general and administrative expenses constituted 34.4% of net sales in
fiscal 2000, an increase of 1.0% from fiscal 1999. We incurred extraordinary
expenses in connection with Canon's year 2000 commemorative activities, but our

                                       20

<PAGE>

active efforts to reduce other expenses helped Canon hold total selling,
general and administrative expenses to a slight increase. We increased R&D
expenditures by 9.3% to improve our technology and to support future growth.

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

     The following table provides segment information by product:

<TABLE>
                                                           As of / for the year ended December 31, 2000
                                    ------------------------------------------------------------------------------------------
                                       Business                        Optical and other      Corporate and
                                       machines         Cameras            products            eliminations       Consolidated
                                    -------------     ------------     ------------------     -------------       ------------
                                                                         (Millions of yen)
<S>                                 <C>               <C>             <C>                    <C>                 <C>
Net sales:
      Unaffiliated customers....    Yen  2,189,151    Yen  324,058           Yen  268,094                 --     Yen  2,781,303
      Intersegment..............                --              --                126,947      Yen  (126,947)                --
                                    --------------    ------------           ------------      -------------     --------------
      Total.....................         2,189,151         324,058                395,041           (126,947)         2,781,303
                                    --------------    ------------           ------------      -------------     --------------
Operating cost and expenses.....         1,870,977         290,892                383,028             (9,593)         2,535,304
                                    --------------    ------------           ------------      -------------     --------------
Operating profit................    Yen    318,174    Yen   33,166           Yen   12,013      Yen  (117,354)    Yen    245,999
                                    ==============    ============           ============      =============     ==============
Assets..........................    Yen  1,324,369    Yen  207,069           Yen  332,229      Yen   968,458     Yen  2,832,125
Depreciation and amortization...           101,557          14,480                 13,019             17,421            146,477
Capital expenditure.............           105,171          15,559                 20,509             29,747            170,986

</TABLE>

<TABLE>
                                                            As of / for the year ended December 31, 1999
                                    -------------------------------------------------------------------------------------------
                                       Business                        Optical and other       Corporate and
                                       machines         Cameras             products            eliminations       Consolidated
                                    -------------     ------------     -----------------      --------------      -------------
                                                                         (Millions of yen)
<S>                                 <C>               <C>             <C>                     <C>                 <C>
Net sales:
      Unaffiliated customers....    Yen  2,163,931    Yen  277,349           Yen  180,985                 --     Yen  2,622,265
      Intersegment..............                --              --                 79,413      Yen   (79,413)                --
                                    --------------    ------------           ------------      -------------     --------------
      Total.....................         2,163,931         277,349                260,398            (79,413)         2,622,265
                                    --------------    ------------           ------------      -------------     --------------
Operating cost and expenses.....         1,902,053         258,382                273,631             12,143          2,446,209
                                    --------------    ------------           ------------      -------------     --------------
Operating profit................    Yen    261,878    Yen   18,967           Yen  (13,233)     Yen   (91,556)    Yen    176,056
                                    ==============    ============           ============      =============     ==============
Assets..........................    Yen  1,256,667    Yen  155,204           Yen  252,071      Yen   923,590     Yen  2,587,532
Depreciation and amortization...           114,451          12,285                 12,860             18,515            158,111
Capital expenditure.............           143,269          12,880                 17,856             26,381            200,386
</TABLE>

Notes:

(1)  General corporate expenses of Yen117,440 million in fiscal 2000 and
     Yen91,540 million in fiscal 1999 are included in "Corporate and
     eliminations."

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

                                       21
<PAGE>

      The following table provides segment information by region:

<TABLE>
                                                       As of / for the year ended December 31, 2000
                                    ------------------------------------------------------------------------------------------------
                                                                                                   Corporate and
                                         Japan         Americas        Europe         Others        eliminations       Consolidated
                                    --------------   -------------  -------------  ------------   -----------------  ---------------
                                                                            (Millions of yen)
<S>                                <C>               <C>             <C>           <C>            <C>               <C>
Net sales:
       Unaffiliated customers       Yen    860,702    Yen  933,778   Yen  764,206   Yen  222,617               --     Yen  2,781,303
         Intersegment........            1,345,983          11,748          3,782        246,024   Yen  (1,607,537)              --
                                    --------------    ------------   ------------   ------------   ---------------    --------------
         Total...............            2,206,685         945,526        767,988        468,641        (1,607,537)        2,781,303
Operating cost and expenses..            1,886,606         915,723        752,271        457,779        (1,477,075)        2,535,304
                                    --------------    ------------   ------------   ------------   ---------------    --------------
Operating profit.............       Yen    320,079    Yen   29,803   Yen   15,717   Yen   10,862   Yen    (130,462)   Yen    245,999
                                    ==============    ============   ============   ============   ===============    ==============

Assets.......................       Yen  1,482,335    Yen  353,919   Yen  407,258   Yen  158,729   Yen     429,884    Yen  2,832,125
</TABLE>
<TABLE>
                                                       As of / for the year ended December 31, 1999
                                    ------------------------------------------------------------------------------------------------
                                                                                                   Corporate and
                                         Japan         Americas        Europe         Others        eliminations       Consolidated
                                    --------------   -------------  -------------  ------------   -----------------  ---------------
                                                                            (Millions of yen)
<S>                              <C>             <C>           <C>           <C>           <C>               <C>
Net sales:
       Unaffiliated customers       Yen    791,399    Yen  912,676   Yen  736,570   Yen  181,620               --     Yen  2,622,265
         Intersegment........            1,205,021          14,468          3,645        179,527   Yen  (1,402,661)              --
                                    --------------    ------------   ------------   ------------   ---------------    --------------
         Total...............            1,996,420         927,144        740,215        361,147        (1,402,661)        2,622,265
Operating cost and expenses..            1,791,871         898,900        727,215        350,482        (1,322,259)        2,446,209
                                    --------------    ------------   ------------   ------------   ---------------    --------------
Operating profit.............       Yen    204,549    Yen   28,244   Yen   13,000   Yen   10,665   Yen     (80,402)   Yen    176,056
                                    ==============    ============   ============   ============   ===============    ==============

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

(1)  General corporate expenses of Yen117,440 million in fiscal 2000 and
     Yen91,540 million in fiscal 1999 are included in "Corporate and
     eliminations."

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

(3)  Segment information by region is determined by the location of the company
     (Canon or its subsidiary).

          Operating profit for business machines increased Yen56,296 million to
     Yen318,174 million in fiscal 2000 from Yen261,878 million in fiscal 1999
     mainly due to increased sales of computer peripherals and improvements in
     our operating profit ratio, reflecting successful efforts to reduce
     production costs and selling expenses.

          Operating profit for cameras increased Yen14,199 million to Yen33,166
     million in fiscal 2000 from Yen18,967 million in fiscal 1999, reflecting
     improved profitability and strong sales of digital cameras and digital
     video camcorders.

          Operating profit for optical and other products increased to Yen12,013
     million in fiscal 2000 compared with an operating loss of Yen13,233 in
     fiscal 1999. The improvement was mainly attributable to increased sales of
     semiconductor production equipment.

          Income before income taxes increased 45.6% to Yen227,196 million in
     fiscal 2000 from Yen156,072 million in fiscal 1999. Income before income
     taxes was 8.2% of net sales in fiscal 2000.

                                       22

<PAGE>

     Net of non-operating expenses decreased to Yen18,803 million in fiscal 2000
from Yen19,984 million in fiscal 1999, primarily due to a decrease in net
interest expenses and an increase in equity earnings of affiliates, partially
offset by an increase in foreign exchange losses. Net interest expenses
decreased to Yen3,590 million in fiscal 2000 from Yen10,134 million in fiscal
1999, primarily due to a decrease in short-term borrowings. The equity earnings
of affiliated companies increased to Yen10,817 million in fiscal 2000 compared
to an equity loss of Yen2,848 million in fiscal 1999. In comparison, foreign
exchange losses increased to Yen20,195 million in fiscal 2000 from Yen3,387
million in fiscal 1999.

     Net income increased 90.9% to Yen134,088 million in fiscal 2000 from
Yen70,234 million in fiscal 1999. Net income in fiscal 2000 represented a 4.8%
return on net sales. The effective rate of income taxes declined by 15.4% to
38.4% in fiscal 2000. The decrease was largely attributable to a reduction of
Japanese normal income tax rates of 5% and its effect on net deferred tax
assets.

     Fiscal 1999 compared with fiscal 1998

     Summarized results of operations for fiscal 1999 and fiscal 1998 are as
follows:

                                     1999         Change            1998
                             ---------------     -------     ---------------
                                       (Million of yen except per share
                                         amounts and percentage data)

Net sales .................. Yen   2,622,265      - 7.2%     Yen   2,826,269
Operating profit ...........         176,056      -32.5              260,778
Income before income taxes..         156,072      -34.8              239,513
Net income .................          70,234      -35.9              109,569

Net income per share:
      Basic ................           80.66      -36.0               126.10
      Diluted ..............           79.50      -35.9               123.93

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

     Sales

     In fiscal 1999, the Asian economy displayed signs of recovery from the
previous year, while the economies in the United States and Europe remained
solid. The approximate average exchange rate of the yen to the U.S. dollar was
Yen113 and to the euro was Yen120. These exchange rates reflect increases of 15%
and 20%, respectively, from fiscal 1998.

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

<TABLE>
                                  1999             Change           1998
                              -------------      ----------   -------------
                                   (Million of yen except percentage data)
<S>                           <C>             <C>                 <C>
Business machines:
      Copying machines.....   Yen   842,082        -   6.1%   Yen   896,641
      Computer peripherals.         965,499        -   9.3        1,064,304
      Business systems.....         356,350        -  10.3          397,272
                              -------------        --------   -------------
    Total business machines       2,163,931        -   8.2        2,358,217
                              -------------        --------   -------------
Cameras....................         277,349        +   3.6          267,636
Optical and other products.         180,985        -   9.7          200,416
                              -------------        --------   -------------
      Total................   Yen 2,622,265        -   7.2%   Yen 2,826,269
                              =============        ========   =============
</TABLE>

                                       23

<PAGE>

     Sales of business machines constituted 82.5% of consolidated net sales in
fiscal 1999. Sales of business machines decreased 8.2% to Yen2,163,931 million
in fiscal 1999 from Yen2,358,217 million in fiscal 1998.

     Sales of copying machines decreased 6.1% to Yen842,082 million in fiscal
1999 from Yen896,641 million in fiscal 1998. Although copying machine sales grew
on a local currency basis, a strong yen led to a decrease in these sales on a
consolidated basis. Sales of digital machines showed significant growth in all
regions, particularly in the Americas and Europe. Color copying machines
performed well in most regions. In comparison, sales of analog machines
decreased as buyers shifted toward digital products.

     Sales of computer peripherals decreased 9.3% to Yen965,499
million in fiscal 1999 from Yen1,064,304 million in fiscal 1998. Laser beam
printer sales decreased mainly because the release of several new products in
late 1998 temporarily reduced overall demand in fiscal 1999 while consumables
continued to grow steadily. New bubble jet printers released in the Japanese
market were well received but overseas sales decreased due to severe price
competition. The new compact scanner released during the period sold well.

     Sales of business systems decreased 10.3% to Yen356,350 million in fiscal
1999 from Yen397,272 million in fiscal 1998. Sales of faxes, especially in
multifunction faxes, declined due to severe price competition.

     Sales of cameras increased 3.6% to Yen277,349 million in fiscal 1999 from
Yen267,636 in fiscal 1998, owing mainly to the introduction of new digital
cameras and digital video camcorders. Sales of 35mm and APS cameras decreased
due to the appreciation of the yen. Camera sales accounted for 10.6% of net
sales.

     Sales of optical and other products decreased 9.7% to Yen180,985 million in
fiscal 1999 from Yen200,416 in fiscal 1998. Stepper-related sales were
negatively impacted by restricted capital investment by semiconductor
manufacturers that was caused by the sluggish semiconductor market through the
first half of fiscal 1999. Optical and other products sales contributed 6.9% to
net sales.

     A regional analysis indicates that net sales in fiscal 1999 decreased in
Japan, the Americas and Europe, but increased elsewhere when compared to net
sales in fiscal 1998. The net sales decline in the Americas and Europe was
mainly attributable to the appreciation of the yen.

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

<TABLE>
                     1999                   Change             1998
                  -------------           ----------      -------------
                         (Million of yen except percentage data)
<S>             <C>                <C>                    <C>

Japan.......      Yen   755,704            -    0.8%      Yen   761,776
Americas....            913,377            -    9.2           1,005,648
Europe......            741,657            -   12.8             850,226
Others......            211,527            +    1.4             208,619
                  -------------            ---------      -------------
 Total......      Yen 2,622,265            -    7.2%      Yen 2,826,269
                  =============            =========      =============
</TABLE>

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

     Earnings

     Operating profit decreased 32.5% to Yen176,056 million in fiscal 1999 from
Yen260,778 million in fiscal 1998. Operating profit constituted 6.7% of net
sales in fiscal 1999.

     The appreciation of the yen adversely affected net sales by approximately
Yen300,000 million in fiscal 1999. The appreciation of the yen lowered gross
profit ratio (gross profit to net sales) by approximately 4.5% including
positive effects on the overseas production and the use of local parts
suppliers. On the other hand, successful Canon's efforts aimed at reducing
production costs and increasing sales of high-value-added products favorably
affected the gross profit ratio. As a result, the gross profit ratio to net
sales was 42.9% in fiscal 1999 as compared to 44.5% in fiscal 1998.

                                       24

<PAGE>

     Selling, general and administrative expenses decreased 4.8% to Yen948,269
million in fiscal 1999 from Yen996,294 million in fiscal 1998. Selling, general
and administrative expense constituted 36.2% of net sales in fiscal 1999, an
increase of 0.9% from fiscal 1998. The decrease was mainly attributable to
Canon's efforts to reduce selling expenses, such as advertising and sales
promotions. R&D expenditures during fiscal 1999 slightly increased by 0.5% to
Yen177,922 million in fiscal 1999 from Yen176,967 million in fiscal 1998. R&D
expenditures constituted 6.8% of net sales in fiscal 1999.

     The disclosures of segment information by product as required in Japan as
of and for the years ended December 31, 1999 and 1998 and of segment information
by region as required in Japan as of and for the years ended December 31, 1999
and 1998 are provided below.

     The following table provides segment information by product:

<TABLE>
                                                            As of / for the year ended December 31, 1999
                                       -------------------------------------------------------------------------------------
                                       Business                          Optical and        Corporate and
                                       machines         Cameras        other products        eliminations       Consolidated
                                       --------         -------        --------------        ------------       ------------
                                                                        (Millions of yen)
<S>                                 <C>               <C>             <C>                  <C>                 <C>
Net sales:
 Unaffiliated customers.........    Yen  2,163,931    Yen  277,349        Yen  180,985                         Yen  2,622,265
 Intersegment...................                -                -              79,413        Yen  (79,413)                 -
                                    --------------    ------------        ------------        ------------     --------------
   Total........................         2,163,931         277,349             260,398             (79,413)         2,622,265
                                    --------------    ------------        ------------        ------------     --------------
Operating cost and expenses.....         1,902,053         258,382             273,631              12,143          2,446,209
                                    --------------    ------------        ------------        ------------     --------------
Operating profit................    Yen    261,878    Yen   18,967        Yen  (13,233)       Yen  (91,556)    Yen    176,056
                                    ==============    ============        ============        ============     ==============
Assets..........................    Yen  1,256,667    Yen  155,204        Yen  252,071        Yen  923,590     Yen  2,587,532
Depreciation and amortization...           114,451          12,285              12,860              18,515            158,111
Capital expenditure.............           143,269          12,880              17,856              26,381            200,386
</TABLE>
<TABLE>
                                                          As of / for the year ended December 31, 1998
                                       -------------------------------------------------------------------------------------
                                       Business                          Optical and        Corporate and
                                       machines         Cameras        other products        eliminations       Consolidated
                                       --------         -------        --------------        ------------       ------------
                                                                        (Millions of yen)
<S>                                 <C>               <C>             <C>                 <C>                 <C>
Net sales:
 Unaffiliated customers.........    Yen  2,358,217    Yen  267,636        Yen  200,416                         Yen 2,826,269
 Intersegment...................                 -               -              80,179        Yen (80,179)                 -
                                    --------------    ------------        ------------        ------------     --------------
   Total........................         2,358,217         267,636             280,595            (80,179)         2,826,269
                                    --------------    ------------        ------------        ------------     --------------
Operating cost and expenses.....         2,041,532         240,429             275,946              7,584          2,565,491
                                    --------------    ------------        ------------        ------------     --------------
Operating profit................    Yen    316,685    Yen   27,207        Yen    4,649        Yen (87,763)     Yen   260,778
                                    ==============    ============        ============        ============     ==============
Assets..........................    Yen  1,438,218    Yen  159,896        Yen  239,884        Yen 890,331      Yen 2,728,329
Depreciation and amortization...           117,179          11,695               9,925             22,988            161,787
Capital expenditure.............           149,072          14,019              17,296             41,014            221,401
</TABLE>
----------
Notes:

(1)  General corporate expenses of Yen91,540 million in fiscal 1999 and
     Yen88,064 million in fiscal 1998 are included in "Corporate and
     eliminations."

(2)  Corporate assets of Yen923,863 million in fiscal 2000 and Yen892,863
     million in fiscal 1999 which mainly consist of cash and cash equivalents,
     marketable securities and corporate properties, are included in "Corporate
     and eliminations."

                                       25
<PAGE>

     The following table provides segment information by region:

<TABLE>

                                                      As of / for the year ended December 31, 1999
                               ------------------------------------------------------------------------------------------
                                                                                            Corporate
                                                                                               and
                                   Japan         Americas       Europe        Others       eliminations     Consolidated
                               ------------- -------------  ------------  -----------   ----------------   --------------
                                                                   (Millions of yen)
<S>                             <C>           <C>           <C>           <C>           <C>               <C>
Net sales:
   Unaffiliated customers...   Yen   791,399   Yen  912,676  Yen  736,570  Yen  181,620                -    Yen 2,622,265
   Intersegment.............       1,205,021         14,468         3,645       179,527  Yen  (1,402,661)               -
                               -------------   ------------  ------------  ------------  ---------------    -------------
     Total..................       1,996,420        927,144       740,215       361,147       (1,402,661)       2,622,265
Operating cost and expenses.       1,791,871        898,900       727,215       350,482       (1,322,259)       2,446,209
                               -------------   ------------  ------------  ------------  ---- ----------    -------------
Operating profit............   Yen   204,549   Yen   28,244  Yen   13,000  Yen   10,665  Yen     (80,402)   Yen   176,056
                               =============   ============  ============  ============  ===============    =============

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

                                                      As of / for the year ended December 31, 1998
                               ------------------------------------------------------------------------------------------
                                                                                            Corporate
                                                                                               and
                                   Japan         Americas       Europe        Others       eliminations     Consolidated
                               ------------- -------------  ------------  -----------   ----------------   --------------
                                                                   (Millions of yen)
<S>                             <C>             <C>             <C>           <C>           <C>               <C>
Net sales:
   Unaffiliated customers...   Yen   796,406  Yen 1,003,683  Yen  841,400  Yen  184,780                     Yen 2,826,269
   Intersegment.............       1,312,405         21,523         3,126       198,702  Yen  (1,535,756)
                               -------------  --------------  ------------  ------------ ---------------    -------------
     Total..................       2,108,811      1,025,206       844,526       383,482       (1,535,756)       2,826,269
Operating cost and expenses.       1,831,816      1,002,166       820,257       370,036       (1,458,784)       2,565,491
                               -------------  -------------  ------------  ------------  ---------------    -------------
Operating profit............   Yen   276,995  Yen    23,040  Yen   24,269  Yen   13,446  Yen     (76,972)   Yen   260,778
                               =============  =============  ============  ============  ===============    =============

Assets......................   Yen 1,384,473  Yen   328,634  Yen  391,354  Yen  136,843  Yen     487,025    Yen 2,728,329
</TABLE>
----------
Notes:

(1)  General corporate expenses of Yen91,540 million in fiscal 1999 and
     Yen88,064 million in fiscal 1998 are included in "Corporate and
     eliminations."

(2)  Corporate assets of Yen923,863 million in fiscal 1999 and Yen892,863
     million in fiscal 1998 which mainly consist of cash and cash equivalents,
     marketable securities and corporate properties, are included in "Corporate
     and eliminations."

(3)  Segment information by region is determined by the location of the company
     (Canon or its subsidiary).

     Operating profit for business machines decreased by Yen54,807 million to
Yen261,878 million in fiscal 1999 compared to Yen316,685 million in fiscal 1998.
This decrease mainly reflected the decline of the gross profit ratio reflecting
the appreciation of the yen. The operating profit ratio also decreased by 1.3%
to 12.1% from 13.4% in fiscal 1998.

     Operating profit for cameras decreased by Yen8,240 million to Yen18,967
million in fiscal 1999 compared to Yen27,207 million in fiscal 1998. The strong
yen reduced the gross profit ratio from cameras and the operating profit ratio
also declined 3.4% to 6.8% from 10.2% in fiscal 1998.


                                       26

<PAGE>

     Operating profit for optical and other products in fiscal 1999 decreased by
Yen17,882 million to an operating loss of Yen13,233 million from an operating
profit of Yen4,649 million in fiscal 1998, mainly attributable to the
semiconductor market decline.

     Income before income taxes decreased 34.8% to Yen156,072 million in fiscal
1999 from Yen239,513 million in fiscal 1998. Income before income taxes was 6.0%
of net sales in fiscal 1999.

     Interest expenses decreased to Yen20,356 million in fiscal 1999 from
Yen28,881 million in fiscal 1998 mainly due to a reduction in short-term
borrowings. The loss attributable to equity in earnings of affiliated companies
decreased to Yen2,848 million in fiscal 1999 compared to Yen5,238 million in
fiscal 1998, primary due to the recovery of a semiconductor-related affiliated
company.

     Foreign exchange losses of Yen3,387 million were recorded in fiscal 1999
compared to foreign exchange gains of Yen1,189 million in fiscal 1998.

     Net income in fiscal 1999 decreased 35.9% to Yen70,234 million from
Yen109,569 million in fiscal 1998. Net income represented a 2.7% return on
sales. While Japanese normal income tax rates declined 4% to 47% in fiscal 1999
from 51% in fiscal 1998, our ratio of income taxes to income before income taxes
rose 2.1% to 53.8% in fiscal 1999 from 51.7% in fiscal 1998, primarily due to
the effect of changing Japanese income tax rates on net deferred tax assets.

     Foreign operations and foreign currency transactions

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

     Net income from foreign operation sales is usually lower than net income
from domestic operation sales because foreign operations consist mainly of
marketing activities. Net income from foreign operation sales in fiscal 2000,
1999 and 1998 were 2.0%, 1.8% and 2.1%, respectively. This compares with 4.8%,
2.7% and 3.9% on total operations for such years, respectively.

     B. Liquidity and capital resources

Liquidity

     Cash and cash equivalents increased Yen13,509 million to Yen493,962 million
in fiscal 2000 from Yen480,453 million in fiscal 1999. Net cash provided by
operating activities increased to Yen346,616 million in fiscal 2000 from
Yen308,917 million in fiscal 1999. This increase is attributable mainly to the
increase in net income. Depreciation declined, reflecting lower capital
expenditures.

     Improvements in production methods and the completion of projects to
enhance facilities also allowed us to hold capital expenditure to less than the
previous year. We used Yen212,804 million of cash in investing activities in
fiscal 2000, compared with Yen200,982 million in fiscal 1999.

     Net cash used in financing activities in fiscal 2000 came to Yen100,597
million, reflecting substantial debt repayment efforts to improve our financial
structure.

Capital resources

     Capital expenditure amounted to Yen170,986 million in fiscal 2000 compared
with Yen200,386 million in fiscal 1999. Capital expenditure in fiscal 2000 were
down from fiscal 1999, owing mainly to improvements in production methods and
the completion of investment projects for base equipment and facilities. In
fiscal 2000, major capital expenditure included the expansion and maintenance

                                       27


<PAGE>

of existing production facilities, construction of a new plant for consumables
and construction of new corporate headquarters and sales offices. Funds
required for investments have mainly been generated internally from operations.

     At December 31, 2000, Canon had outstanding commitments of approximately
Yen51,656 million to purchase property, plant and equipment. Such property,
plant and equipment will be purchased for use in the ordinary course of our
business. We anticipate that funds needed to fulfill these commitments will be
generated internally through operations.

     Working capital increased Yen86,879 million to Yen696,609 million in fiscal
2000 from Yen609,730 million in fiscal 1999. The increase is primarily
attributable to the increase of inventories and trade receivables caused by
growing sales. Canon believes its working capital is sufficient for its present
requirements.

     The working capital ratio (current assets to current liabilities) was 1.71
in fiscal 2000, compared with 1.70 in fiscal 1999.

     Return on assets rose to 4.9% in fiscal 2000 from 2.6% in fiscal 1999.
Return on stockholders' equity also rose to 10.7% in fiscal 2000 from 6.0% in
fiscal 1999.

     The debt ratio (total debt to total assets) declined to 13.8% in fiscal
2000 from 17.9% in fiscal 1999, mostly due to active efforts to repay debt.

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

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

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

     Canon employs approximately 7,000 R&D engineers and scientists who are
involved in the fields of precision mechanics, electronics, optics, applied
physics and organic and inorganic chemistry. Canon had research and development
expenditures of Yen194,552 million in fiscal 2000, Yen177,922 million in fiscal
1999 and Yen176,967 million in fiscal 1998. Canon's strategy emphasizes the
application of advanced technologies to competitive new products, the
improvement of manufacturing techniques and the support of basic research for
the future.

     Canon's R&D activities are conducted at five primary centers: the Core
Technology Development Headquarters (where component engineering and base
technology R&D, such as in new materials, nanotechnology, and production
engineering is conducted); Platform Technology Development Headquarters (where
platform technologies for digital network device R&D is conducted); Display
Development Headquarters (where display devices R&D is conducted); Internet
Business Development Headquarters (where new business based on internet
technology R&D is conducted); Ecology Research Center (where solar cell battery
R&D is conducted). In addition, Canon maintains R&D centers for each of its
product divisions.

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

                                       28


<PAGE>

     D. Trend information

New Accounting Standards

     In May 2000, the Emerging Issues Task Force reached a final consensus on
Issue 00-14 ("EITF 00-14"), "Accounting for Certain Sales Incentives". EITF
00-14 addresses accounting and reporting standards for sales incentives such as
coupons or rebates that are provided by vendors or manufacturers and are
exercisable by customers at the point of sale. EITF 00-14 applies to periods
beginning after December 15, 2001, although earlier adoption is encouraged.

     In January 2001, the Emerging Issues Task Force also reached a final
consensus on a portion of Issue 00-22 ("EITF 00-22"), "Accounting for 'Points'
and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers
for Free Products or Services to Be Delivered in the Future". EITF 00-22
addresses accounting and reporting standards for sales incentives such as
loyalty programs or rebates that are offered to customers by vendors only if the
customer completes a specified cumulative level of revenue transactions with the
vendor or remains a customer of the vendor for a specified time period. The
income statement display requirements related to the portion of EITF 00-22 for
which a final consensus has been reached should be applied no later than the
fiscal quarter ending after February 15, 2001.

     Canon will adopt EITF 00-14 and the income statement display requirements
of EITF 00-22 in the year ending December 31, 2001. The adoption of the
recognition standards for liabilities of EITF 00-14 does not have a material
effect on Canon's consolidated financial position or results of operations. The
adoption in 2001 of the income statement display requirements of EITF 00-14 and
00-22 will result in a reduction in reported sales for the years ended December
31, 2000 of Yen84,883 million and a corresponding decrease in selling, general
and administrative expenses, with no effect on net income, as a result of
reclassifications of prior year's consolidated financial statements for
comparative purposes. The effect on sales for the years ended December 31,1999
and 1998 have not yet been determined.

Looking forward

     Canon believes an economic recovery in the United States before the second
half of fiscal 2001 is unlikely. Canon expects that IT-related activity will
stimulate the global economy and beneficially affect Canon's growth. Canon
anticipates expanding internet use and advancing wireless communication
technologies will drive the multimedia society, creating diverse new businesses
and products, and widening opportunities for growth. Canon believes the IT
revolution and globalization will continue to eliminate market borders and
intensify competition. Within the semiconductor production equipment market,
restrained capital investment by semiconductor manufacturers is likely to lead
to a rapid drop in orders. As nearly 70% of Canon's products are marketed
overseas, and a large portion of these products are manufactured at plants in
Japan, further appreciation of the yen will have a negative impact on Canon's
operating results.

     Canon intends to commence Phase II of its Excellent Global Corporation
Plan. This plan focuses management resources in the digital photo, digital
office and semiconductor production equipment businesses. Canon intends to
strategically reinforce its position in these businesses. Canon intends to work
to develop key components and devices including optical devices, photosensitive
devices, semiconductor devices and software. These components and devices form
the core competency of the Group's digital imaging technologies. Canon also
intends to shift production within the Canon Group. In addition Canon intends to
continue working to expand its solution businesses in marketing activities.

                                       29


<PAGE>

Item 6. Directors, Senior Management and Employees

     A. Directors and senior management

     Directors and corporate auditors of the Company as of March 31, 2001 and
their respective business experience are listed below.

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


                                  30

<PAGE>
<TABLE>

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


                                  31

<PAGE>
<TABLE>

----------------------------------------------------------------------------------------------------------------------------------
Name                Position                                     Date of                          Business experience
 (Date of birth)     (Group executive/function)                  commencement                (*current position/function)
-----------------   ------------------------------------        --------------      ----------------------------------------------
<S>                 <C>                                         <C>                <C>
Nobuyoshi Tanaka    Managing Director                                   4/1970      Joined the company
  (Dec. 23, 1945)   (Corporate Intellectual                             1/1991      Senior General Manager of Semiconductor
                      Property & Legal HQ)                                            Production Equipment Development Center
                                                                        3/1993      Director
                                                                        4/1993      Chief Executive of Optical Products HQ
                                                                        4/1999      Group Executive of Corporate Intellectual
                                                                                      Property & Legal HQ*
                                                                        3/2001      Managing Director*
-----------------   ------------------------------------        --------------      ----------------------------------------------
Tsuneji Uchida      Managing Director                                   4/1965      Joined the company
  (Oct. 30, 1941)   (Image Communication Products                       4/1995      Group Executive of Lens Products Group
                    Operations HQ)                                      3/1997      Director
                                                                        4/1997      Deputy Chief Executive of Camera Operations HQ/
                                                                                      Group Executive of Photo Products Group
                                                                        4/1999      Chief Executive of Camera Operations HQ
                                                                        7/1999      In charge of promotion of digital photo
                                                                                      business
                                                                        1/2000      In charge of promotion of digital photo home
                                                                                      business
                                                                        1/2001      Chief Executive of Image Communications
                                                                                      Products HQ*
                                                                        3/2001      Managing Director*
-----------------   ------------------------------------        --------------      ----------------------------------------------
Junji Ichikawa      Managing Director                                   4/1965      Joined Shiba Electronics Co., Ltd.
   (Feb. 9, 1943)   (Peripheral Products HQ)                            1/1970      Joined the company
                                                                        4/1994      Group Executive of Peripheral Group 1
                                                                        3/1997      Director
                                                                        4/1997      Deputy Chief Executive of Peripheral Products
                                                                                      HQ
                                                                        4/2000      Chief Executive of Peripheral Products HQ*
                                                                        3/2001      Managing Director*
-----------------   ------------------------------------        --------------      ----------------------------------------------
Hajime Tsuruoka     Managing Director                                   3/1970      Joined Meiji Seika Kaisha Ltd.
   (July 9, 1943)                                                      11/1973      Joined the company
                                                                        4/1995      President of Canon Italia S.p.A.
                                                                        3/1997      Director
                                                                       10/1997      President of Canon Deutschland GmbH
                                                                        3/1999      President of Canon Europa N.V.*
                                                                        3/2001      Managing Director*
-----------------   ------------------------------------        --------------      ----------------------------------------------

</TABLE>



                                       32
<PAGE>
<TABLE>

----------------------------------------------------------------------------------------------------------------------------------
Name                Position                                     Date of                          Business experience
 (Date of birth)     (Group executive/function)                  commencement                (*current position/function)
-----------------   ------------------------------------        --------------      ----------------------------------------------
<S>                     <C>                                   <C>                <C>
Toru Takahashi      Director                                            3/1966      Joined the company
 (Sept. 11, 1942)                                                       1/1991      Deputy Chief Executive of Copying Machine
                                                                                      Operations/Deputy Chief Executive of Image
                                                                                      Systems Operations
                                                                        3/1991      Director*
                                                                        5/1992      Group Executive of Products Technology
                                                                                      Development HQ
                                                                        1/1993      Deputy Group Executive of Component
                                                                                      Development Operations HQ
                                                                        4/1995      Group Executive of Research & Development HQ
                                                                        7/1999      Executive Vice President of Canon U.S.A., Inc.*
-----------------   ------------------------------------        --------------      ----------------------------------------------
Muneo Adachi        Director                                            4/1967      Joined the company
  (Mar. 13, 1943)   (New Business HQ)                                   4/1996      Deputy Group Executive of Product
                                                                                      Development HQ
                                                                        3/1997      Director*
                                                                        7/1999      Group Executive of New Business HQ*
-----------------   ------------------------------------        --------------      ----------------------------------------------
Teruomi Takahashi   Director                                            9/1971      Joined the company
  (Jun. 10, 1943)   (I-Printing Products HQ)                            4/1996      Deputy Chief Executive of Chemical Products HQ
                                                                        3/1999      Director*
                                                                        4/1999      Chief Executive of Chemical Products HQ
                                                                        2/2001      Chief Executive of I-Printing Products HQ*
-----------------   ------------------------------------        --------------      ----------------------------------------------
Hironori Yamamoto   Director                                            4/1969      Joined the company
  (Dec. 23, 1943)    (Core Technology Development HQ)                   1/1998      Deputy Group Executive of Production
                                                                                      Management HQ
                                                                        3/1999      Director*
                                                                        7/1999      Group Executive of Core Technology Development
                                                                                      HQ*/Deputy Group Executive of Display
                                                                                      Development HQ*
-----------------   ------------------------------------        --------------      ----------------------------------------------
Akiyoshi Moroe      Director                                            4/1968      Joined the company
 (Sept. 28, 1944)   (General Affairs HQ)                                7/1996      Deputy Group of Executive of Human Resource
                    (Information and Communications                                   Management & Organization HQ
                    Systems HQ)                                         3/1999      Director*
                                                                        4/1999      Group Executive of General Affairs HQ*
                                                                       10/2000      Group Executive of Information & Communications
                                                                                      Systems HQ*
-----------------   ------------------------------------        --------------      ----------------------------------------------
Kunio Watanabe      Director                                            4/1969      Joined the company
   (Oct. 3, 1944)  (Corporate Strategy & Development HQ)                4/1995      Group Executive of Corporate Strategy and
                                                                                      Development HQ*
                                                                        3/1999      Director*
-----------------   ------------------------------------        --------------      ----------------------------------------------
Ikuo Soma           Director                                            4/1970      Joined the company
   (Aug. 4, 1946)   (Office Imaging Products HQ)                        1/1997      Group Executive of Office Imaging Products
                                                                                      Group 1
                                                                        3/1999      Director*
                                                                        4/1999      Chief Executive of Office Imaging Products HQ*
                                                                                      /Group Executive of Office Imaging Products
                                                                                      Group 2*
-----------------   ------------------------------------        --------------      ----------------------------------------------
Yoroku Adachi       Director                                            4/1970      Joined the company
  (Jan. 11, 1948)                                                       3/2001      Chairman of Canon Singapore Pte. Ltd.*
                                                                                      Director*
-----------------   ------------------------------------        --------------      ----------------------------------------------
</TABLE>


                                  33
<PAGE>
<TABLE>
----------------------------------------------------------------------------------------------------------------------------------
Name                Position                                     Date of                          Business experience
 (Date of birth)     (Group executive/function)                  commencement                (*current position/function)
-----------------   ------------------------------------        --------------      ----------------------------------------------
<S>                 <C>                                         <C>                 <C>
Yasuo Mitsuhashi    Director                                            4/1974      Joined the company
   (Nov. 23 1949)   (Chemical Products HQ)                              2/2001      Chief Executive of Chemical Products HQ*
                                                                        3/2001      Director*
-----------------   ------------------------------------        --------------      ----------------------------------------------
Kohtaro Miyagi      Corporate Auditor                                   4/1964      Joined the company
  (Jun. 17, 1940)                                                       3/1991      President of Canon Australia Pty. Ltd.
                                                                        3/1995      Director
                                                                        4/1995      President of Canon Singapore Pte. Ltd.
                                                                        3/2001      Corporate Auditor*
-----------------   ------------------------------------        --------------      ----------------------------------------------
Masaharu Aono       Corporate Auditor                                   4/1963      Joined the company
   (Nov. 5, 1940)                                                       3/1995      Senior Managing Director of Canon
                                                                                      Chemicals Inc.
                                                                        3/2001      Corporate Auditor*
-----------------   ------------------------------------        --------------      ----------------------------------------------
Tadashi Ohe         Corporate Auditor                                   4/1969      Registration as a lawyer*
   (May 20, 1944)                                                       4/1989      Instructor of Judicial Training Institution
                                                                        3/1994      Corporate Auditor*
-----------------   ------------------------------------        --------------      ----------------------------------------------
Tetsuo Yoshizawa    Corporate Auditor                                   4/1968      Joined Dai-Ichi Mutual Life Insurance Co.
  (Sept. 5, 1945)                                                       4/1991      General Manager of Investment Planning
                                                                                      Division
                                                                        4/1992      General Manager Osaka of General Corporate
                                                                                      Group III
                                                                        4/1995      General Manager of Financing Corporate
                                                                                      Division
                                                                        3/1998      Corporate Auditor*

</TABLE>

     Directors and corporate auditors are elected at the annual meeting of
shareholders for a two-year and three-year term of office, respectively, and may
serve any number of consecutive terms. The current term of all directors expires
in March 2003, and the current term of all corporate auditors expires in March
2004, except Mr. Tadashi Ohe whose term expires in March 2002.

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

     B. Compensation

          (a)  In the fiscal year ended December 31, 2000, the company paid
               approximately Yen1,189 million, in total to Directors and
               corporate auditors. This amount includes bonuses but does not
               include retirement allowances.

          (b)  Directors and corporate auditors are not covered by the Company's
               retirement program. However, in accordance with customary
               Japanese business practices, directors and corporate auditors
               receive lump-sum retirement allowance, subject to shareholder
               approval.

     The Company does not have a stock option plan for directors, corporate
auditors or any other employees.

                                       34
<PAGE>

     C. Board practices

        See Item 6A "Directors and senior management".

     D. Employees

     Following table lists the number of Canon full-time employees as of
December 31, 2000, 1999 and 1998.

<TABLE>

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

December 31, 1999*
Total......................    81,009

December 31, 1998*
Total......................    79,799
</TABLE>

----------
*  Segment information for 1999 and 1998 is not available.


     There was an increase of approximately 5,600 employees as of the end of
fiscal 2000 compared to the end of fiscal 1999. This increase is due to several
factors, including primarily:

     o    Increased consolidation in fiscal 2000, compared to fiscal 1999,
          including Nisca Co.; and

     o    A natural increase, especially in the Asian region, to accommodate
          increasing production.

     Canon had approximately 21,500 temporary employees as of December 31, 2000.
This number includes seasonal workers as well as temp-staff employees such as
security staff, meal service staff and janitorial staff.

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

                                       35
<PAGE>

     E. Share ownership

     The following table lists the number of shares owned by the directors and
corporate auditors of the company as of March 31, 2001. The total number is
224,164 as shown below, and this number constituted 0.03% of all outstanding
shares.

<TABLE>
Name                      Position                        Number of shares
----                      --------                        ----------------
<S>                       <C>                            <C>
Fujio Mitarai.........    President & C.E.O.                   55,348
Ichiro Endo...........    Senior Managing Director             14,378
Yukio Yamashita.......    Senior Managing Director             10,000
Toshizo Tanaka........    Senior Managing Director             10,608
Takashi Saito.........    Managing Director                    21,544
Yusuke Emura..........    Managing Director                     9,613
Kinya Uchida..........    Managing Director                    11,535
Akira Tajima..........    Managing Director                    11,435
Nobuyoshi Tanaka......    Managing Director                     7,435
Tsuneji Uchida........    Managing Director                     3,200
Junji Ichikawa........    Managing Director                     5,871
Hajime Tsurouoka......    Managing Director                     3,435
Toru Takahashi........    Director                             12,378
Muneo Adachi..........    Director                              3,075
Teruomi Takahashi.....    Director                              4,871
Hironori Yamamoto.....    Director                              1,000
Akiyoshi Moroe........    Director                              7,735
Kunio Watanabe........    Director                              3,435
Ikuo Soma.............    Director                              2,250
Yoroku Adachi.........    Director                              3,435
Yasuo Mitsuhashi......    Director                              1,435
Kohtaro Miyagi........    Corporate Auditor                     5,435
Masaharu Aono.........    Corporate Auditor                     3,613
Tadashi Ohe...........    Corporate Auditor                    10,100
Tetsuo Yoshizawa......    Corporate Auditor                     1,000
                                                              -------
     Total...........................................         224,164
                                                              =======
</TABLE>


 .  .  .

                                       36

<PAGE>


Item 7. Major Shareholders and Related Party Transactions

     A. Major shareholders

     The table below lists the number of Canon shares held by holders of 5% or
more of Canon shares and their percentage ownership as of December 31, 2000:


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

The Dai-Ichi Mutual Life Insurance Co...             72,931            8.3%

     Our major shareholder does not have different voting rights from other
shareholders.

     As of December 31, 2000, approximately 13.7% of the outstanding shares were
held of record by 232 residents of the United States of America.

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

     B. Related party transactions

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

     To the company's knowledge, no person owned a 10% interest in the voting
power of Canon as of March 31, 2001.

     C. Interests of experts and counsel

     None.

                                       37

<PAGE>

Item 8. Financial Information

     A. Consolidated statements and other financial information

Consolidated statements

     This Annual Report contains consolidated financial statements as of
December 31, 1999 and 2000 and for each of the three years in the period ending
December 31, 2000 audited in accordance with accounting principles generally
accepted in the United States of America by KPMG, independent auditors, and
accompanied by an audit report covering each of the periods.

     Canon's total amount of export sales constitutes a significant portion of
Canon's total sales volume. Canon includes in its financial statements the total
amount of export sales and the percent and amount of export sales in the total
amount of sales volume.

Legal proceedings

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

Dividend policy

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

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

     B. Significant changes

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


                                       38

<PAGE>


Item 9. The Offer and Listing

     A. Offer and listing details

Trading in domestic markets

     The common stock of the Company, par value 50 yen per share, has been
listed on the Tokyo Stock Exchange (TSE), which is the principal stock exchange
market in Japan, since 1949, and is traded on the First Section of the TSE. The
shares are also listed on four other regional markets in Japan.

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

<TABLE>
                                     TSE                           TOPIX                         Nikkei Stock Average
        Period                   (Canon Inc.)                 (Reference data)                     (Reference data)
-----------------------    ------------------------    ------------------------------     ---------------------------------
                                (Japanese yen)                    (Points)                          (Japanese yen)
                              High          Low             High             Low              High                Low
                           ----------    ----------    --------------    ------------     --------------     --------------
<S>                        <C>           <C>           <C>               <C>             <C>                 <C>
1996 Year..............    Yen  2,630    Yen  1,780        1,722.13         1,448.45      Yen  22,666.80     Yen  19,161.71
1997  Year.............         3,820         2,280        1,560.28         1,130.00           20,681.07          14,775.22
1998  Year.............         3,400         1,930        1,300.30           980.11           17,264.34          12,879.87
1999 1(st) quarter.....         3,120         2,170        1,269.76         1,048.33           16,378.78          13,232.74
     2(nd) quarter.....         3,600         2,715        1,425.64         1,292.07           17,782.79          15,972.68
     3(rd) quarter.....         4,100         2,740        1,535.23         1,420.64           18,532.58          16,821.06
     4(th) quarter.....         4,200         2,725        1,722.20         1,460.23           18,934.34          17,254.17
2000 1(st) quarter.....         4,920         3,550        1,754.78         1,558.15           20,706.65          18,168.27
     2(nd) quarter.....         5,520         3,830        1,732.45         1,504.93           20,833.21          16,008.14
     3(rd) quarter.....         5,620         4,420        1,613.89         1,439.43           17,614.66          15,626.96
     4(th) quarter.....         4,950         3,400        1,512.20         1,255.16           16,149.08          13,423.21
</TABLE>

<TABLE>
                                     TSE                           TOPIX                        Nikkei Stock Average
        Period                   (Canon Inc.)                 (Reference data)                    (Reference data)
-----------------------    ------------------------    ------------------------------    -----------------------------------
                                (Japanese yen)                    (Points)                         (Japanese yen)
                              High          Low             High             Low              High                Low
                           ----------    ----------    --------------    ------------    ---------------     ---------------
<S>                        <C>           <C>           <C>               <C>             <C>                <C>
2000 July..............    Yen  5,620    Yen  4,720        1,613.89         1,452.93      Yen 17,614.66      Yen 15,727.49
   August..............         5,040         4,460        1,543.63         1,450.88          17,181.12          15,667.36
   September...........         4,970         4,420        1,520.65         1,439.43          16,739.78          15,626.96
   October.............         4,950         3,870        1,512.20         1,379.96          16,149.08          14,464.56
   November............         4,580         3,950        1,455.28         1,341.82          15,399.64          14,301.31
   December............         4,470         3,400        1,393.67         1,255.16          15,168.68          13,423.21
2001 January...........         4,610         4,100        1,313.01         1,230.10          14,032.42          13,201.07
   February............         4,270         3,820        1,299.01         1,237.80          13,779.55          12,883.54
   March...............         4,980         3,760        1,337.63         1,161.97          13,862.31          11,819.70
</TABLE>

Trading in foreign markets

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

     Since our 1969 public offering in the United States of U.S.$9,000,000
principal amount of our 6 1/2 % Convertible Debentures due 1984, there has been
limited trading in the over-the-counter market in the Company's ADRs. Since
March 16, 1998, each ADR represent one share of our common stock. Our ADSs have
been quoted on the National Association of Securities Dealers Automated

                                       39

<PAGE>

Quotation system ("NASDAQ") since 1972 under the symbol CANNY to September 13,
2000.

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

                                  NASDAQ                      NYSE
      Period                   (Canon Inc.)               (Canon Inc.)
-----------------------   ----------------------     ---------------------
                                          (U.S. dollars)
                            High           Low         High          Low
                          --------       -------     --------      -------
1996 Year..............    $22.750       $17.150
1997 Year..............     32.100        19.950
1998 Year..............     24.963        17.000
1999 1(st) quarter.....     25.938        19.250
     2(nd) quarter.....     29.250        23.000
     3(rd) quarter.....     33.625        26.625
     4(th) quarter.....     40.938        25.750
2000 1(st) quarter.....     46.250        33.500
     2(nd) quarter.....     51.750        37.563
     3(rd) quarter.....     51.625        41.500      $46.938      $42.625
     4(th) quarter.....                                45.750       31.000

                                  NASDAQ                      NYSE
      Period                   (Canon Inc.)               (Canon Inc.)
-----------------------   ----------------------     ---------------------
                                          (U.S. dollars)
                            High           Low         High          Low
                          --------       -------     --------      -------
2000 July..............    $51.625       $42.750
     August............     47.438        41.500
     September.........     45.875        41.875      $46.938      $42.625
     October...........                                45.750       37.000
     November..........                                42.938       37.063
     December..........                                40.000       31.000
2001 January...........                                39.250       33.688
     February..........                                37.190       32.600
     March.............                                40.550       31.500


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

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

     B. Plan of distribution

          Not applicable.

     C. Markets

          See Item 9A "Offer and Listing Details".

                                       40

<PAGE>

Item 10. Additional Information

     A. Share capital

          Not applicable.

     B. Memorandum and articles of association

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

     C. Material contracts

          None.

     D. Exchange controls

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

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

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

          Issuance of Securities by the Company:

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

          Acquisition of Shares:

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

          In the case where a foreign investor intends to acquire listed shares
          (whether from a resident or a non-resident of Japan, from another
          foreign investor or from or through a designated securities company)
          and as a result of such acquisition the number of shares held,
          directly or indirectly, by such foreign investor

                                       41
<PAGE>

          would become 10% or more of the total outstanding shares of the
          company, the foreign investor must generally report such acquisition
          to the Minister of Finance and other Ministers having jurisdiction
          over the business of the subject company within 15 days from and
          including the date of such acquisition. In certain exceptional cases,
          a prior notification is required in respect of such acquisition.

          Acquisition of Shares upon Conversion of Convertible Bonds or Exercise
          of Warrants:

          The acquisition by a non-resident of Japan of shares upon conversion
          of his convertible bonds or upon exercise of his warrants is exempted
          from the notification and reporting requirements described under
          "Acquisition of Shares" above.

          Dividends and Proceeds of Sales:

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

     (b)  Reporting of Substantial Shareholdings:

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

     E. Taxation

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

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

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

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

                                       42
<PAGE>

Japanese inheritance and gift taxes at progressive rates may be payable by an
individual who has acquired the shares or ADRs as a distributee, legatee or
donee.

     F. Dividends and paying agents

          Not applicable.

     G. Statement by experts

          Not applicable.

     H. Documents on display

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

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

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

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

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

     I. Subsidiary information

          Not applicable.

Item 11. Quantitative and Qualitative Disclosures About Market Risk

Market risk exposures

     Canon is exposed to market risks, including changes in foreign exchange
rates, interest rates and prices of marketable securities and marketable
investments. In order to hedge the risks of changes in foreign exchange rates
and interest rates, Canon uses derivative financial instruments. Canon does not
hold or issue derivative financial instruments for trading purposes. Although
the use of derivative financial instruments exposes Canon to the risk of
credit-related losses in the event of non-performance by counterparties, Canon
believes that its counterparties are creditworthy and does not expect such
losses, if any, to be significant.

Equity price risk

     Canon holds some marketable securities and marketable investments in
current assets for short-term investment. In general, highly-liquid and low-risk
instruments are preferred in the portfolio. Marketable securities and marketable
investments included in noncurrent assets are held as longer-term investments.
Canon's investments in equity securities are mainly consisted of financial
sector stocks. Canon does not hold marketable securities and marketable
investments for trading purposes.

     Maturities and fair values of such marketable securities and marketable
investments were as follows at December 31, 2000 and 1999.

                                       43
<PAGE>

<TABLE>
                                                            2000                           1999
                                                  ---------------------------     --------------------------
                                                    Cost         Fair value        Cost          Fair value
                                                  --------       ----------       ------        ------------
                                                                     (Millions of yen)
<S>                                                    <C>             <C>            <C>             <C>
Due within one year..........................     Yen  2,191      Yen  2,250     Yen  1,745     Yen   1,732
Due after one year through five years........          2,780           3,573          3,004           4,484
Due after five years.........................          6,376           6,463          5,377           5,741
Equity securities............................         29,956          62,398         24,772         116,720
                                                  ----------      ----------     ----------     -----------
Total........................................     Yen 41,303      Yen 74,684     Yen 34,898     Yen 128,677
                                                  ==========      ==========     ==========     ===========
</TABLE>

Foreign exchange risk

     Canon's international operations and foreign currency indebtedness expose
Canon to the risk of changes in foreign currency exchange rates. To manage this
exposure, Canon enters into foreign exchange contracts. With respect to risks
related to its sales revenue, Canon currently has a policy of entering into
foreign exchange contracts that cover between approximately 30 - 50% of the
amount of foreign currency cash flows that Canon, at a given time, anticipates
it will receive within the immediately succeeding two to three month period.
Canon also enters into foreign exchange contracts from time to time to hedge a
portion of the risk of fluctuation in foreign currency exchange rates associated
with long-term debt that is denominated in foreign currencies. Foreign exchange
contracts related to such long-term debt have the same maturity as the
underlying debt.

     The following table provides information about Canon's major derivative
financial instruments related to foreign currency exchange transactions existing
at December 31, 2000 and 1999, which is translated into yen at the rate used
herein as of such date, together with the related weighted average contractual
exchange rates at December 31, 2000 and 1999. This table does not include
amounts related to foreign exchange contracts entered into in connection with
long-term debt denominated in foreign currencies which eliminate all foreign
currency exposures. All of the foreign exchange contracts described in the
following table as of December 31, 2000 have a contractual maturity date in
2001.

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

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


<TABLE>

                                                                    As of December 31 1999
                                                -----------------------------------------------------------------
Forwards to sell foreign currencies             U.S.$/Yen            euro/Yen            Others           Total
-----------------------------------             -----------         -----------        ----------     -----------
                                                      (Millions of yen except average contractual rates)
<S>                                             <C>                   <C>                <C>               <C>
Contract amounts........................        Yen 123,813        Yen  45,037       Yen  2,081     Yen  170,931
Estimated fair value....................                953                579             (104)           1,428
Average contractual rates...............             102.38             103.84               --               --
</TABLE>

                                       44

<PAGE>

Interest rate risk

     Canon's exposure to the market risk of changes in interest rates relates
primarily to its debt obligations. Canon has long-term debt with both fixed
rates and floating rates. Interest rate swaps may be entered into from time to
time by Canon to hedge cash flows of interest and debt when determined by Canon
to be appropriate based on market conditions.

     The following tables provide information about Canon's derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates. For debt obligations, the table presents principal cash flows
and related weighted average interest rates by expected maturity dates. For
interest rate swaps, the table presents notional principal amounts and weighted
average interest rates by expected maturity dates. Notional principal amounts
are used to calculate the contractual payments to be exchanged under the
contracts. The table presents information for obligations existing at December
31, 2000 and 1999, which is translated into yen at the rate used herein as of
such date, together with the related weighted average contractual interest rates
at December 31, 2000 and 1999.

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

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

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

                                                                                Expected maturity date
                           Average              ------------------------------------------------------------------------------------
                          interest                                                                                        Estimated
                           rates*     Total         2000        2001        2002        2003        2004     Thereafter  fair value
                          -------- -----------  -----------  ----------  ----------  ----------  ----------  ----------  ----------
                                                                           (Millions of yen except interest rate data)
Year ended
December 31, 1999:
Japanese yen notes.......   2.27   Yen 111,920           --  Yen 19,920  Yen 37,000  Yen 10,000  Yen 20,000  Yen 25,000  Yen 116,233
Japanese yen convertible
 debentures..............   1.20        21,254           --           9       5,248          --          --      15,997       55,734
Swiss franc note
  with warrants..........   0.74         6,984  Yen   6,984          --          --          --          --          --        6,994
Loans, principally from
 banks...................   3.69        50,193       18,090      15,966       9,407       2,152         674       3,904       49,303
                                   -----------  -----------  ----------  ----------  ----------  ----------  ----------  -----------

 Total..............          --   Yen 190,351  Yen  25,074  Yen 35,895  Yen 51,655  Yen 12,152  Yen 20,674  Yen 44,901  Yen 228,264
                                   ===========  ============ ==========  ==========  ==========  ==========  ==========  ===========
</TABLE>
----------

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

                                       45

<PAGE>

<TABLE>

Interest rate swaps

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

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

Year ended December 31, 1999:
                                                                             Expected maturity date
 Notional     Average                           ----------------------------------------------------------------------------------
 principal    receive     Average                                                                                       Estimated
 amount       rate        pay rate     Total        2000        2001       2002        2003        2004     Thereafter  fair value
-----------  ---------   ---------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
(Millions)                                             (Millions of yen except notional principal amount and  percentage data)


Yen  60,000    1.66%        0.88%   Yen 60,000         --   Yen 40,000  Yen 20,000          --          --         --   Yen  2,113
U.S.$   468    6.02         6.11        47,929   Yen 4,316      15,130      28,483          --          --         --          161
</TABLE>



Item 12. Description of Securities Other than Equity Securities

Not applicable.


                                       46

<PAGE>



                                    PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

     None.

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

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

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

     The adoption of a unit of Shares has, inter alia, the following
consequences:

       (i)    Except under certain limited circumstances, the Company may issue
              share certificates only for shares constituting one or more
              complete units. Since the transfer of shares normally requires
              delivery of the certificates therefor, fractions of a unit for
              which no share certificates have been issued are not transferable.

       (ii)   A holder of shares not constituting one or more complete units may
              at any time require the Company to purchase such shares at their
              last reported sale price on the TSE on the day when such request
              is made or, if no sale takes place on the TSE on that day, the
              price at which the first sale of the shares is effected on the TSE
              thereafter, less the usual brokerage commission and securities
              transfer tax.

       (iii)  A holder of shares representing less than one unit cannot exercise
              any voting rights with respect to such shares. A person (except a
              corporate shareholder more than one-quarter of whose outstanding
              shares are, directly or indirectly, owned by the Company) holding
              at least one unit of shares has one vote per share with respect to
              those shares constituting one or more complete unit.


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

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

Item 15. [Reserved]

Item 16. [Reserved]


                                       47

<PAGE>

                                    PART III

Item 17. Financial Statements

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

     Independent Auditors' Report............................................49

     Consolidated Balance Sheets as of December 31, 2000 and 1999............50

     Consolidated Statements of Income for the years ended December
     31, 2000, 1999 and 1998.................................................51

     Consolidated Statements of Stockholders' Equity for the years
     ended December 31, 2000, 1999 and 1998..................................52

     Consolidated Statements of Cash Flows for the years ended
     December 31, 2000, 1999 and 1998........................................53

     Notes to Consolidated Financial Statements..............................54

Schedule:

     Independent Auditors' Report on Schedule................................49

     Schedule II Valuation and Qualifying Accounts for the years ended
     December 31, 2000, 1999 and 1998........................................76

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

Financial statements of non-consolidated subsidiaries and affiliates,
20% to 50% owned, are omitted because they were not significant as of
or for the year ended December 31, 2000.


                                  48
<PAGE>


KPMG

        Hibiya Kokusai Building 22F             Tel +81(3)3509-7800
        2-3 Uchisaiwaicho 2-chome               Fax +81(3)3509-7811
        Chiyoda-ku, Tokyo 100-0011
        Japan

                         Independent Auditors' Report


The Board of Directors
Canon Inc.:


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

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

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

In our opinion, except for the omission of the segment information as
discussed in the third paragraph of this report, the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Canon Inc. and subsidiaries at December 31, 2000 and
1999, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.

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


KPMG

Tokyo, Japan
February 2, 2001

                                  49

<PAGE>

                           CANON INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                           December 31, 2000 and 1999

<TABLE>

                                                                                                Millions of Yen
                                                                                         -----------------------------
                                                                                             2000              1999
                                                                                         -------------       ---------
                                       Assets
                                       ------
<S>                                                                                     <C>                <C>
Current assets:
      Cash and cash equivalents.....................................................     Yen   493,962         480,453
      Marketable securities (notes 3 and 7).........................................            10,943           9,003
      Trade receivables (notes 4 and 7).............................................           479,790         376,472
      Inventories (notes 5 and 7)...................................................           490,693         436,250
      Prepaid expenses and other current assets (note 10)...........................           196,011         184,411
                                                                                         -------------       ---------
      Total current assets..........................................................         1,671,399       1,486,589

Noncurrent receivables and restricted funds (note 17)...............................            27,626          29,771
Investments (notes 3 and 7).........................................................           119,195         166,464
Net property, plant and equipment (notes 6 and 7)...................................           771,594         746,824
Other assets (notes 9 and 10).......................................................           242,311         157,884
                                                                                         -------------       ---------
      Total assets..................................................................     Yen 2,832,125       2,587,532
                                                                                         =============       =========
                       Liabilities and Stockholders' Equity
                       ------------------------------------
Current liabilities:
      Short-term loans (note 7).....................................................     Yen   248,688         298,399
      Trade payables (note 8).......................................................           444,633         364,664
      Incomes taxes (note 10).......................................................            53,865          45,915
      Accrued expenses..............................................................           164,484         117,390
      Other current liabilities (note 10)...........................................            63,120          50,491
                                                                                         -------------       ---------
      Total current liabilities.....................................................           974,790         876,859

Long-term debt, excluding current installments (note 7).............................           142,925         165,277
Accrued pension and severance cost (note 9).........................................           194,445         132,826
Other noncurrent liabilities (note 10)..............................................            22,838          11,325
                                                                                         -------------       ---------
      Total liabilities.............................................................         1,334,998       1,186,287
                                                                                         -------------       ---------
Minority interests..................................................................           198,213         199,242
                                                                                         -------------       ---------
Stockholders' equity:
      Common stock of Yen50 par value.
 Authorized 2,000,000,000 shares; issued and outstanding 875,627,023 shares
   in 2000 and 871,555,698 shares in 1999 (notes 7 and 11)..........................           164,796         163,969
      Additional paid-in capital (notes 7 and 11)...................................           391,939         376,848
      Legal reserve (note 12).......................................................            35,584          33,518
      Retained earnings (notes 10 and 12)...........................................           853,177         735,975
      Accumulated other comprehensive income (loss) (notes 3, 9, 10 and 14).........          (146,582)       (108,307)
                                                                                         -------------       ---------
      Total stockholders' equity....................................................         1,298,914       1,202,003
                                                                                         -------------       ---------
Commitments and contingent liabilities (note 17)....................................
                                                                                         -------------       ---------
      Total liabilities and stockholders' equity....................................     Yen 2,832,125       2,587,532
                                                                                         =============       =========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       50

<PAGE>

                           CANON INC. AND SUBSIDIARIES
                        Consolidated Statements of Income
                  Years ended December 31, 2000, 1999 and 1998

<TABLE>

                                                                                  Millions of Yen
                                                                --------------------------------------------------
                                                                      2000                1999             1998
                                                                --------------         ---------         ---------
<S>                                                             <C>                  <C>               <C>
Net sales...................................................     Yen 2,781,303         2,622,265         2,826,269
Cost of sales...............................................         1,577,461         1,497,940         1,569,197
      Gross profit..........................................         1,203,842         1,124,325         1,257,072
Selling, general and administrative expenses................           957,843           948,269           996,294
                                                                 -------------         ---------         ---------
      Operating profit......................................           245,999           176,056           260,778
Other income (deductions):
      Interest and dividend income..........................            11,428            10,222            12,576
      Interest income.......................................           (15,018)          (20,356)          (28,881)
      Other, net............................................           (15,213)           (9,850)           (4,960)
                                                                 -------------         ---------         ---------
                                                                       (18,803)          (19,984)          (21,265)
                                                                 -------------         ---------         ---------
      Income before income taxes and minority interests.....           227,196           156,072           239,513
Income taxes (note 10)......................................            87,197            83,939           123,843
                                                                 -------------         ---------         ---------
      Income before minority interests......................           139,999            72,133           115,670

Minority interests..........................................             5,911             1,899             6,101
      Net income............................................     Yen   134,088            70,234           109,569
                                                                 =============         =========         =========

                                                                                         Yen
                                                                 -------------------------------------------------
Net income per share (notes 1(p) and 15):
      Basic.................................................     Yen    153.66             80.66            126.10
      Diluted...............................................            151.51             79.50            123.93
                                                                 -------------         ---------         ---------
Dividends per common share (note 12)........................     Yen     21.00             17.00             17.00
                                                                 =============         =========         =========
</TABLE>


         See accompanying notes to consolidated financial statements.

                                       51
<PAGE>

                           CANON INC. AND SUBSIDIARIES
                 Consolidated Statements of Stockholders' Equity
                  Years ended December 31, 2000, 1999 and 1998
<TABLE>

                                                                                               Millions of yen
                                                                                ------------------------------------------
                                                                                    2000              1999         1998
                                                                                --------------    -----------    ---------
<S>                                                                            <C>                <C>            <C>
Common stock:
      Balance at beginning of year.........................................     Yen   163,969         163,033      160,411
      Conversion of convertible debt (notes 11 and 13).....................               668             936        2,622
      Shares issued for acquisition of minority interests (notes 11 and 13)               159             --           --
                                                                                -------------     -----------    ---------
      Balance at end of year...............................................           164,796         163,969      163,033
                                                                                -------------     -----------    ---------
Additional paid-in capital:
      Balance at beginning of year.........................................           376,848         375,913      372,398
      Conversion of convertible debt (notes 11 and 13).....................               661             935        2,612
      Shares issued for acquisition of minority interests (notes 11 and 13)            14,430              --           --
      Increase arising from issuance of subsidiaries' common stock,
        conversion of convertible debt and exercise of warrants of
        subsidiaries and other transfers........................................         --               --           903
                                                                                -------------     -----------    ---------
      Balance at end of year....................................................      391,939         376,848      375,913
                                                                                -------------     -----------    ---------
Legal reserve:
      Balance at beginning of year.........................................            33,518          31,396       28,467
      Transfers from retained earnings (note 12)...........................             2,066           2,122        2,934
      Transfers to minority interests arising from issuance of subsidiaries'
        common stock, conversion of convertible debt and exercise of
        warrants of subsidiaries and other transfers............................           --             --            (5)
                                                                                -------------     -----------    ---------
      Balance at end of year...............................................            35,584          33,518       31,396
                                                                                -------------     -----------    ---------
Retained earnings:
      Balance at beginning of year.........................................           735,975         682,663      592,268
      Net income for the year..............................................           134,088          70,234      109,569
      Cash dividends (note 12).............................................           (14,820)        (14,797)     (15,619)
      Transfers to legal reserve (note 12).................................            (2,066)         (2,122)      (2,934)
      Transfers to minority interests arising from issuance of
        subsidiaries' common stock, conversion of convertible debt and
        exercise of warrants of subsidiaries and other transfers................          --               (3)        (621)
                                                                                -------------     -----------    ---------
      Balance at end of year...................................................       853,177         735,975      682,663
                                                                                -------------     -----------    ---------
Accumulated other comprehensive income (loss) (notes 3, 9, 10 and 14):
      Balance at beginning of year.........................................          (108,307)        (97,485)     (44,033)
      Other comprehensive income (loss) for the year, net of tax...........           (38,275)        (10,822)     (53,452)
                                                                                -------------     -----------    ---------
      Balance at end of year...............................................          (146,582)       (108,307)     (97,485)
                                                                                -------------     -----------    ---------
      Total stockholders' equity...........................................     Yen 1,298,914       1,202,003    1,155,520
                                                                                =============     ===========    =========
Disclosure of comprehensive income:
      Net income for the year..............................................     Yen   134,088          70,234      109,569
      Other comprehensive income (loss) for the year, net of tax (note 14).           (38,275)        (10,822)     (53,452)
                                                                                -------------     -----------    ---------
            Total comprehensive income for the year........................     Yen    95,813          59,412       56,117
                                                                                =============     ===========    =========
</TABLE>

         See accompanying notes to consolidated financial statements.


                                       52

<PAGE>

                           CANON INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                  Years ended December 31, 2000, 1999 and 1998

<TABLE>
                                                                                            Millions of Yen
                                                                                ------------------------------------------
                                                                                      2000             1999         1998
                                                                                -------------     -----------    ---------
<S>                                                                             <C>               <C>            <C>
Net income................................................................      Yen   134,088          70,234      109,569
Adjustments to reconcile net income to net cash provided by operating
 activities:
      Depreciation and amortization.......................................            146,477         158,111      161,787
      Loss on disposal of property, plant and equipment...................             14,080           8,814        6,631
      Deferred income taxes...............................................            (10,280)         (5,972)       1,941
      Decrease (increase) in trade receivables............................            (52,751)         (1,231)       1,640
      Decrease (increase) in inventories..................................            (27,884)        107,913       15,737
      Increase (decrease) in trade payables...............................            100,588         (22,950)     (46,636)
      Increase (decrease) in income taxes.................................              6,917         (13,966)         607
      Increase in accrued expenses........................................             21,343           3,206        9,386
      Other, net..........................................................             14,038           4,758       18,558
                                                                                -------------     -----------    ---------
      Net cash provided by operating activities...........................            346,616         308,917      279,220
                                                                                -------------     -----------    ---------
Cash flows from investing activities:
      Capital expenditure.................................................      Yen  (170,986)       (200,386)    (221,401)
      Proceeds from sale of property, plant and equipment.................              5,752           6,104        3,404
      Payment for purchase of marketable securities.......................             (3,082)        (12,349)      (5,386)
      Proceeds from sale of marketable securities.........................              2,428           6,637        9,439
      Payment for purchase of investments.................................            (14,702)         (9,770)     (28,111)
      Other...............................................................            (32,214)          8,782       (5,892)
                                                                                -------------     -----------    ---------
      Net cash used in investing activities...............................           (212,804)       (200,982)    (247,947)
                                                                                -------------     -----------    ---------
Cash flows from financing activities (note 13):
      Proceeds from long-term debt........................................      Yen    17,358          23,811       34,903
      Repayment of long-term debt.........................................            (32,529)        (75,005)     (29,458)
      Decrease in short-term loans........................................            (67,923)        (51,871)    (167,295)
      Dividends paid (note 12)............................................            (14,820)        (14,797)     (15,619)
      Other...............................................................             (2,683)         (4,961)        (393)
                                                                                -------------     -----------    ---------
      Net cash used in financing activities...............................           (100,597)       (122,823)    (177,862)
                                                                                -------------     -----------    ---------
Effect of exchange rate changes on cash and cash equivalents..............            (19,706)         (3,841)      (1,326)
                                                                                -------------     -----------    ---------
Net change in cash and cash equivalents...................................             13,509         (18,729)    (147,915)
Cash and cash equivalents at beginning of year............................            480,453         499,182      647,097
                                                                                -------------     -----------    ---------
Cash and cash equivalents at end of year..................................      Yen   493,962         480,453      499,182
                                                                                =============     ===========    =========
Cash paid during the year for:
      Interest............................................................      Yen    14,860          19,321       21,083
      Income taxes........................................................             90,560         103,877      121,295
                                                                                =============     ===========    =========
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       53

<PAGE>

                          CANON INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

(1)  Basis of Presentation and Significant Accounting Policies
     ---------------------------------------------------------
     (a)  Description of Business
          -----------------------
          The Company and subsidiaries (collectively "Canon") is a
          high-technology oriented company which operates globally and has
          numerous core businesses. Originally a 35mm camera maker, Canon is now
          one of the world's leading manufacturers in other fields, such as
          copying machines and computer peripherals, mainly laser beam and
          bubble jet printers. Canon's products also include business systems
          such as faxes, computers, micrographics, Japanese-language word
          processors and calculators. Canon's camera business consists mainly of
          SLR cameras, compact cameras, video camcorders and digital cameras.
          Optical related products include steppers and aligners used in
          semiconductor chip production, broadcasting lenses and medical
          equipment. Canon's sales in the year ended December 31, 2000 were
          distributed as follows: copying machines-30%, computer
          peripherals-38%, business systems-11%, cameras-12%, and optical and
          other products-9%.

          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 69% of consolidated net sales
          in the year ended December 31, 2000 were generated outside Japan, with
          34% in Americas, 27% in Europe and 8% in other areas.

          Canon's manufacturing operations are conducted primarily at 17 plants
          in Japan and 12 overseas plants which are located in the United
          States, Germany, France, Taiwan, China, Malaysia, Thailand, and
          Mexico.

          Canon sells laser beam printers on an OEM basis to Hewlett-Packard
          Co.; such sales constituted approximately 20% of consolidated sales
          for the year ended December 31, 2000. Canon believes it is highly
          unlikely that it would lose such OEM business in the near term.

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

          The accompanying consolidated financial statements reflect the
          adjustments which management believes are necessary to conform them
          with accounting principles generally accepted in the United States of
          America.

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

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

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

                                       54
<PAGE>
                          CANON INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

          accumulated in stockholders' equity as foreign currency translation
          adjustments.

          Gains and losses resulting from other foreign currency transactions
          are included in other income (deductions) (see note 19).

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

          Trading and available-for-sale securities are recorded at fair value.
          Held-to-maturity securities are recorded at amortized cost, adjusted
          for the amortization or accretion of premiums or discounts. Unrealized
          holding gains and losses on trading securities are included in
          earnings. Unrealized holding gains and losses, net of the related tax
          effect, on available-for-sale securities are excluded from earnings
          and are reported as a separate component of other comprehensive income
          until realized.

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

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

          Canon's share of the net earnings (loss) of companies carried at
          equity, included in other income (deductions), and dividends received
          from those companies for the years ended December 31, 2000, 1999 and
          1998 are as follows:

                                                  Millions of yen
                                        ------------------------------------
                                           2000          1999         1998
                                        -----------    -------      --------

          Net earnings (loss).......    Yen  10,817     (2,848)      (5,238)
          Dividends received........             67         40          188

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

     (j)  Goodwill
          --------
          The excess of cost over the net tangible and identifiable intangible
          assets acquired at acquisition dates of investments in subsidiaries
          and affiliated companies is being amortized principally over 10 years.

     (k)  Income Taxes
          ------------
          Canon accounts for income taxes in accordance with Statement of
          Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for
          Income Taxes". Under the asset and liability method of SFAS 109,
          deferred tax assets and liabilities are recognized for the estimated
          future tax consequences attributable to differences between the
          financial statement carrying amounts of existing assets and
          liabilities and their respective tax bases and operating loss and tax

                                       55
<PAGE>

                          CANON INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

          credit carryforwards. Deferred tax assets and liabilities are
          measured using enacted tax rates expected to apply to taxable income
          in the years in which those temporary differences are expected to be
          recovered or settled. Under SFAS 109, the effect on deferred tax
          assets and liabilities of a change in tax rates is recognized in
          income in the period that includes the enactment date.

     (l)  Employee Retirement and Severance Benefits
          ------------------------------------------
          The Company and certain of its subsidiaries have various employee
          retirement and severance defined benefit plans covering substantially
          all employees who meet eligibility requirements (see note 9).

     (m)  Advertising
          -----------
          The costs of advertising are expensed as incurred.

     (n)  Derivatives
          -----------
          Canon does not hold derivative financial instruments for trading
          purposes. Derivative financial instruments held by Canon are comprised
          principally of foreign exchange contracts to manage currency risk and
          interest rate swaps to manage interest rate risk.

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

          In June 1998, the Financial Accounting Standards Board issued
          Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
          "Accounting for Derivative Instruments and Hedging Activities". In
          June 2000, the Financial Accounting Standards Board also issued
          Statement of Financial Accounting Standards No. 138 ("SFAS 138"),
          "Accounting for Certain Derivative Instruments and Certain Hedging
          Activities, an amendment of FASB Statement No. 133". Both standards
          establish accounting and reporting standards for derivative
          instruments and for hedging activities, and require that an entity
          recognize all derivatives as either assets or liabilities in the
          balance sheet and measure those instruments at fair value. SFAS 133,
          as amended, and 138 are effective for fiscal years beginning after
          June 15, 2000. Canon adopted SFAS 133 and 138 as of January 1, 2001.
          The cumulative effect adjustment upon the adoption of SFAS 133 and
          138, net of the related income tax effect, resulted in an increase to
          net income of approximately Yen3,692 million and a decrease to other
          comprehensive income of approximately Yen2,401 million. The adoption
          of SFAS 133 and 138 will not alter Canon's hedging strategies.

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

     (p)  Net Income per Share
          --------------------
          Basic net income per share have been computed by dividing net income
          available to common stockholders by the weighted-average number of
          common shares outstanding during each year. Diluted net income per
          share reflect the potential dilution and have been computed on the
          basis that all convertible debentures were converted at beginning of

                                       56
<PAGE>

                          CANON INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

          the year or at time of issuance (if later), and that all dilutive
          warrants were exercised (less the number of treasury shares assumed
          to be purchased from the proceeds using the average market price of
          the Company's common shares).

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

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

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

          In December 1999, the Securities and Exchange Commission issued Staff
          Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
          Financial Statements". SAB 101, as amended, summarizes certain of the
          SEC's views in applying generally accepted accounting principles to
          revenue recognition in financial statements and provides guidance on
          revenue recognition issues in the absence of authoritative literature
          addressing a specific arrangement or a specific industry. Canon
          adopted SAB 101 in the year ended December 31, 2000. Adoption of this
          guidance did not have a material effect on Canon's consolidated
          financial position or results of operations.

     (t)  New Accounting Standards
          ------------------------
          In May 2000, the Emerging Issues Task Force reached a final consensus
          on Issue 00-14 ("EITF 00-14"), "Accounting for Certain Sales
          Incentives". EITF 00-14 addresses accounting and reporting standards
          for sales incentives such as coupons or rebates that are provided by
          vendors or manufacturers and are exercisable by customers at the point
          of sale. EITF 00-14 should be applied no later than in (a) financial
          statements for the fiscal year beginning after December 15, 2000, or
          (b) financial statements for the fiscal quarter beginning after March
          15, 2001, whichever is later. Canon will adopt EITF 00-14 in the year
          ending December 31, 2001. The adoption of the recognition standards
          for liabilities is not expected to have a material effect on Canon's
          consolidated financial position or results of operations. The adoption
          in 2001 of the income statement display requirements of EITF 00-14
          will result in a reduction in reported sales for the year ended
          December 31, 2000 of approximately Yen29,536 million and a
          corresponding decrease in selling, general and administrative
          expenses, with no effect on net income, as a result of
          reclassifications of prior year's consolidated financial statements
          for comparative purposes. The effects on sales for the years ended
          December 31, 1999 and 1998 have not yet been determined.

                                       57
<PAGE>

                          CANON INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)


          In January 2001, the Emerging Issues Task Force also reached a final
          consensus on a portion of Issue 00-22 ("EITF 00-22"), "Accounting for
          "Points" and Certain Other Time-Based or Volume-Based Sales Incentive
          Offers, and Offers for Free Products or Services to Be Delivered in
          the Future". EITF 00-22 addresses accounting and reporting standards
          for sales incentives such as loyalty programs or rebates that are
          offered to customers by vendors only if the customer completes a
          specified cumulative level of revenue transactions with the vendor or
          remains a customer of the vendor for a specified time period. The
          income statement display requirements related to the portion of EITF
          00-22 for which a final consensus has been reached should be applied
          no later than the fiscal quarter ending after February 15, 2001. Canon
          will adopt such income statement display requirements of EITF 00-22 in
          the year ending December 31, 2001. The adoption will result in a
          reduction in reported sales for the prior years and a corresponding
          decrease in selling, general and administrative expenses, with no
          effect on net income, as a result of reclassifications of prior years'
          consolidated financial statements for comparative purposes, however,
          the effects on sales for the prior years have not yet been determined.

     (u)  Reclassifications
          -----------------
          Certain reclassifications have been made to the prior years'
          consolidated financial statements to conform the presentation used for
          the year ended December 31, 2000.

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

                                            Millions of yen
                             ---------------------------------------------
                                  2000            1999           1998
                             -------------     ----------     ------------

     Total assets.......     Yen 1,016,908        917,810        987,828
     Net assets.........           381,553        326,631        364,623
     Net sales..........         1,920,601      1,830,866      2,029,863
     Net income.........            37,519         32,876         42,505


(3)  Marketable Securities and Marketable Investments
     ------------------------------------------------
     Marketable securities and marketable investments consist of
     available-for-sale securities. The carrying amount, gross unrealized
     holding gains, gross unrealized holding losses and fair value for such
     securities by major security type at December 31, 2000 and 1999 are as
     follows:


                                       58

<PAGE>
                          CANON INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

<TABLE>
                                                                          Millions of yen
                                                    ---------------------------------------------------------
                                                                      Gross           Gross
                                                                    Unrealized      Unrealized
                                                                     Holding         Holding
                                                       Cost           Gains           Losses       Fair Value
                                                    -----------     -----------   -----------     -----------
<S>                                                 <C>            <C>             <C>             <C>
2000:
     Current:
     Available-for-sale:
     Japanese and foreign governmental
       bond securities..........................    Yen      49             --            --               49
     Corporate debt securities..................          2,734             273           --            3,007
     Bank debt securities.......................             91             --            --               91
     Fund trusts................................          2,977             540           --            3,517
     Equity securities..........................          3,260           1,116            97           4,279
                                                    -----------     -----------   -----------     -----------
                                                    Yen   9,111           1,929            97          10,943
                                                    ===========     ===========   ===========     ===========
     Noncurrent:
     Available-for-sale:
     Japanese and foreign governmental
       bond securities..........................    Yen     174             --            --              174
     Corporate debt securities..................          5,133             126           --            5,259
     Bank debt securities.......................            149               1           --              150
     Fund trusts................................             40             --              1              39
     Equity securities..........................         26,696          31,430             7          58,119
                                                    -----------     -----------   -----------     -----------
                                                    Yen  32,192          31,557             8          63,741
                                                    ===========     ===========   ===========     ===========
1999:
     Current:
     Available-for-sale:
     Japanese and foreign governmental bond
       securities...............................    Yen      45             --            --               45
     Corporate debt securities..................          2,543             373           --            2,916
     Bank debt securities.......................            157             --            --              157
     Fund trusts................................          1,962           1,470           --            3,432
     Equity securities..........................          2,039             432            18           2,453
                                                    -----------     -----------   -----------     -----------
                                                    Yen   6,746           2,275            18           9,003
                                                    ===========     ===========   ===========     ===========
     Noncurrent:
     Available-for-sale:
     Japanese and foreign governmental
       bond securities..........................    Yen     156             --            --              156
     Corporate debt securities..................          5,099              84           --            5,183
     Bank debt securities.......................            164             --             96              68
     Equity securities..........................         22,733          91,534           --          114,267
                                                    -----------     -----------   -----------     -----------
                                                    Yen  28,152          91,618            96         119,674
                                                    ===========     ===========   ===========     ===========
</TABLE>

   Net unrealized gains on available-for-sale securities, net of related taxes
   and minority interests, decreased by Yen34,532 million in the year ended
   December 31, 2000, increased by Yen41,257 million in the year ended
   December 31, 1999, and decreased by Yen3,059 million in the year ended
   December 31, 1998.


                                       59
<PAGE>

                          CANON INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

     Maturities of marketable securities and marketable investments classified
     as available-for-sale were as follows at December 31, 2000:

     ....

                                                  Millions of yen
                                            ---------------------------
                                               Cost         Fair Value
                                            -----------     -----------
     Due within one year................... Yen   2,191           2,250
     Due after one year through five years.       2,780           3,573
     Due after five years..................       6,376           6,463
     Equity securities.....................      29,956          62,398
                                            -----------     -----------
                                            Yen  41,303          74,684
                                            ===========     ===========

     Proceeds from sale of available-for-sale securities were Yen2,428 million,
     Yen6,637 million and Yen9,439 million in the years ended December 31,
     2000, 1999 and 1998, respectively. Realized gains and losses during the
     years ended December 31, 2000, 1999 and 1998 were insignificant.

(4)  Trade Receivables
     -----------------
     Trade receivables are summarized as follows:

                                                 Millions of yen
                                            -------------------------
                                                 2000          1999
                                            -----------     ---------
     Notes................................. Yen   44,189       31,989
     Accounts..............................      453,463      359,572
     Less allowance for doubtful
       receivables.........................       17,862       15,089
                                            ------------    ---------
                                            Yen  479,790      376,472
                                            ============    =========

(5)  Inventories
     -----------
     Inventories comprised the following:


                                                   Millions of yen
                                              -------------------------
                                                   2000          1999
                                              ------------   ----------
     Finished goods.......................... Yen  354,796      308,529
     Work in process.........................      121,278      114,666
     Raw materials...........................       14,619       13,055
                                              ------------   ----------
                                              Yen  490,693      436,250
                                              ============   ==========


                                       60


<PAGE>
                          CANON INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)


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

                                                   Millions of yen
                                              -------------------------
                                                   2000          1999
                                              -------------  ----------
     Land.................................... Yen  155,358      148,722
     Buildings...............................      652,779      614,136
     Machinery and equipment.................      918,490      871,207
     Construction in progress................       34,819       26,331
                                              ------------    ---------
                                                 1,761,446    1,660,396

     Less accumulated depreciation...........      989,852      913,572
                                              ------------   ----------
                                              Yen  771,594      746,824
                                              ============   ==========

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

                                                   Millions of yen
                                              -------------------------
                                                   2000         1999
                                              -------------   ---------
     Bank borrowings......................... Yen   65,911       72,645
     Acceptances payable by foreign
        subsidiaries.........................      144,282      200,680
     Long-term debt due within one year......       38,495       25,074
                                              Yen  248,688      298,399

     The weighted average interest rates on short-term loans outstanding at
     December 31, 2000 and 1999 were 6.05% and 5.18%, respectively.

     At December 31, 2000, unused short-term credit facilities for issuance of
     commercial paper amounted to Yen67,045 million.

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

                                       61
<PAGE>
                          CANON INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

     Long-term debt consisted of the following:

<TABLE>

                                                                                Millions of yen
                                                                           -------------------------
                                                                               2000          1999
                                                                           ------------    ---------
<S>                                                                        <C>             <C>
   Loans, principally from banks, maturing in installments through 2030;
     bearing weighted average interest of 3.40% and 3.69% at December
     31, 2000 and 1999, respectively, partially secured by mortgage of
     property, plant and equipment and marketable securities.............  Yen   49,574       50,193
   2-7/20% Japanese yen notes, due 2001..................................        19,920       19,920
   2-1/20% Japanese yen notes, due 2002..................................         5,000        5,000
   2-3/5% Japanese yen notes, due 2002...................................        20,000       20,000
   1-7/50% Japanese yen notes, due 2002..................................         2,000        2,000
   1-3/5% Japanese yen notes, due 2002...................................        10,000       10,000
   2-3/10% Japanese yen notes, due 2003..................................         5,000        5,000
   1-53/100% Japanese yen notes, due 2003................................         5,000        5,000
   2-23/40% Japanese yen notes, due 2004.................................        10,000       10,000
   2-1/40% Japanese yen notes, due 2004..................................        10,000       10,000
   1-22/25% Japanese yen notes, due 2005.................................         5,000        5,000
   2-19/20% Japanese yen notes, due 2007.................................        10,000       10,000
   2-27/100% Japanese yen notes, due 2008................................        10,000       10,000
   3/4% Swiss franc notes with warrants issued by a subsidiary, due 2000:
     Principal amount....................................................           --         7,055
     Less unamortized discount...........................................           --            71
                                                                           ------------    ---------
                                                                                    --         6,984
                                                                           ------------    ---------
   1% Japanese yen convertible debentures, due 2002......................         4,746        5,248
   1-2/10% Japanese yen convertible debentures, due 2005.................         5,221        5,763
   1-3/10% Japanese yen convertible debentures, due 2008.................         9,959       10,234
   Other.................................................................           --             9
                                                                           ------------    ---------
                                                                                181,420      190,351
   Less amount due within one year.......................................        38,495       25,074
                                                                           ------------    ---------
                                                                           Yen  142,925      165,277
                                                                           ============    =========
</TABLE>

                                       62
<PAGE>
                          CANON INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

     The aggregate annual maturities of long-term debt outstanding at December
     31, 2000 were as follows:

                                            Millions of yen
                                            ---------------
     2001................................   Yen      38,495
     2002................................            56,667
     2003................................            18,455
     2004................................            21,147
     2005................................            11,567
     Later years ........................            35,089
                                            ---------------
                                            Yen     181,420
                                            ===============

     Property, plant and equipment with a book value at December 31, 2000 of
     Yen9,726 million were mortgaged to secure long-term debt.

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

     The 1% Japanese yen convertible debentures due 2002 are currently
     convertible into approximately 3,170,000 shares of common stock at a
     conversion price of Yen1,497.00 per share. The debentures are redeemable
     at the option of the Company between January 1, 2001 and December 31,
     2001 at 1% premium, and at par thereafter, or, dependent on a particular
     circumstance, at par.

     The 1-2/10% Japanese yen convertible debentures due 2005 are currently
     convertible into approximately 3,488,000 shares of common stock at a
     conversion price of Yen1,497.00 per share. The debentures are redeemable
     at the option of the Company between January 1, 2001 and December 31,
     2004 at premiums ranging from 4% to 1%, and at par thereafter, or,
     dependent on a particular circumstance, at par.

     The 1-3/10% Japanese yen convertible debentures due 2008 are currently
     convertible into approximately 6,653,000 shares of common stock at a
     conversion price of Yen1,497.00 per share. The debentures are redeemable
     at the option of the Company between January 1, 2002 and December 31,
     2007 at premiums ranging from 6% to 1%, and at par thereafter, or,
     dependent on a particular circumstance, at par.

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

                                     Millions of yen
                              ----------------------------
                                   2000            1999
                              -------------    -----------
     Notes..................  Yen   139,804        113,512
     Accounts...............        304,829        251,152
                              -------------      ---------
                              Yen   444,633        364,664
                              =============      =========


(9)  Employee Retirement and Severance Benefits
     ------------------------------------------
     The Company and certain of its subsidiaries have contributory and
     noncontributory defined benefit plans covering substantially all
     employees after one year of service. Other subsidiaries sponsor unfunded

                                       63
<PAGE>
                          CANON INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)


     retirement and severance plans. Benefits payable under the plans are
     based on employee earnings and years of service. The contributory plan
     includes a portion of the governmental welfare pension benefits which
     would otherwise be provided by the Japanese government in accordance with
     the Welfare Pension Insurance Law in Japan. Management considers that a
     portion of the contributory plans, which are administered by a board of
     trustees composed of management and labor representatives, represents a
     welfare pension plan carried on behalf of the Japanese government. These
     contributory and noncontributory plans are funded in conformity with the
     funding requirements of applicable Japanese governmental regulations.

     Net periodic benefit cost for Canon's employee retirement and severance
     defined benefit plans for the years ended December 31, 2000, 1999 and
     1998 consisted of the following components:

<TABLE>

                                                                          Millions of yen
                                                             ----------------------------------------
                                                                  2000           1999          1998
                                                             -------------   -----------   ----------
<S>                                                           <C>             <C>           <C>
     Service cost - benefits earned during the year.......   Yen   31,712        31,295        25,307
     Interest cost on projected benefit obligation........         16,512        15,599        14,360
     Expected return on plan assets.......................         (9,834)      (10,393)      (11,510)
     Net amortization ....................................          5,016         6,566         4,244
                                                             ------------     ---------     ---------
                                                             Yen   43,406        43,067        32,401
                                                             ============     =========     =========
</TABLE>


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


                                       64
<PAGE>
                          CANON INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

<TABLE>
                                                                                       Millions of yen
                                                                              ------------------------------
                                                                                    2000               1999
                                                                              ------------       -----------
<S>                                                                           <C>                 <C>
Change in benefit obligations:
    Benefit obligations at beginning of year..............................    Yen  518,078           491,102
    Service cost..........................................................          31,712            31,295
    Interest cost.........................................................          16,512            15,599
    Plan participants' contributions......................................           3,512             3,403
    Actuarial loss (gain).................................................          51,059           (16,983)
    Benefits paid.........................................................          (6,727)           (6,067)
    Other.................................................................              41              (271)
                                                                              ------------       -----------
    Benefit obligations at end of year....................................         614,187           518,078
                                                                              ------------       -----------
Change in plan assets:
    Fair value of plan assets at beginning of year........................         311,407           270,713
    Actual return on plan assets..........................................           2,437            17,336
    Employer contributions................................................          27,594            26,022
    Plan participants' contributions......................................           3,512             3,403
    Benefits paid.........................................................          (6,727)           (6,067)
                                                                              ------------       -----------
    Fair value of plan assets at end of year..............................         338,223           311,407
                                                                              ------------       -----------
Funded status.............................................................         275,964           206,671
Unrecognized actuarial loss...............................................        (189,906)         (136,119)
Unrecognized net transition obligation being recognized over 22
  years...................................................................          (5,680)           (6,025)
                                                                              ------------       -----------

Net amount recognized.....................................................          80,378            64,527

Adjustments to recognize minimum liability:
    Intangible assets.....................................................           5,680             6,025
    Amount included in accumulated other comprehensive
      income (loss), gross of tax.........................................         108,387            62,274
                                                                              ------------       -----------
                                                                                   114,067            68,299
                                                                              ------------       -----------
    Accrued pension and severance cost recognized in the
      consolidated balance sheets........................................     Yen  194,445           132,826
                                                                              ============       ===========
    Actuarial present value of accumulated benefit obligations at
      end of year.........................................................    Yen  532,668           444,233
                                                                              ============       ===========
    Actuarial assumptions:
      Discount rate.......................................................            3.00%             3.00%
      Assumed rate of increase in future compensation levels..............            2.10%             2.10%
      Expected long-term rate of return on plan assets....................            4.00%             4.00%
</TABLE>


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

                                       65
<PAGE>


                          CANON INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)



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

<TABLE>
                                                                                          Millions of yen
                                                                        ---------------------------------------------
                                                                           2000             1999             1998
                                                                        -----------      -----------      -----------
<S>                                                                     <C>             <C>              <C>
     Income before income taxes and minority interest.................. Yen  87,197           83,939          123,843
     Stockholders' equity - accumulated other comprehensive income
       (loss):
       Foreign currency translation adjustments........................       1,387             (239)            (674)
       Net unrealized gains on securities..............................     (25,457)          37,286           (4,399)
       Minimum pension liability adjustments...........................     (19,365)           7,712          (17,345)
                                                                        -----------      -----------      -----------
                                                                        Yen  43,762          128,698          101,425
                                                                        ===========      ===========      ===========
</TABLE>


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

                                                Millions of yen
                                     ----------------------------------------
                                       Japanese       Foreign        Total
                                     ------------   -----------    ----------
    2000:
       Income before income taxes..  Yen  166,074        61,122       227,196
                                     ============   ===========    ==========
       Income taxes:
         Current...................  Yen   78,832        18,645        97,477
         Deferred..................       (14,584)        4,304       (10,280)
                                     ------------   -----------    ----------
                                     Yen   64,248        22,949        87,197
                                     ============   ===========    ==========
    1999:
       Income before income taxes..  Yen  100,044        56,028       156,072
                                     ============   ===========    ==========
       Income taxes:
         Current...................  Yen   64,197        25,714        89,911
         Deferred..................        (2,097)       (3,875)       (5,972)
                                     ------------   -----------    ----------
                                     Yen   62,100        21,839        83,939
                                     ============   ===========    ==========
    1998:
       Income before income taxes..  Yen  172,303        67,210       239,513
                                     ============   ===========    ==========
       Income taxes:
         Current...................  Yen   97,437        24,465       121,902
         Deferred..................         3,453        (1,512)        1,941
                                     ------------   -----------    ----------
                                     Yen  100,890        22,953       123,843
                                     ============   ===========    ==========


                                       66
<PAGE>
                          CANON INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)



     The Company and its domestic subsidiaries are subject to a number of
     taxes based on income, which in the aggregate resulted in a normal tax
     rate of approximately 42.0% in the year ended December 31, 2000, 47.0% in
     the year ended December 31, 1999 and 51.0% in the year ended December 31,
     1998.

     Amendments to Japanese tax regulations were enacted into law on March 24,
     1999 and on March 31, 1998. As a result of these amendments, the normal
     income tax rate was reduced from approximately 47.0% to 42.0% effective
     from Canon's fiscal year beginning January 1, 2000 and from approximately
     51.0% to 47.0% effective from Canon's fiscal year beginning January 1,
     1999. Current income taxes were calculated at the rate of 42.0%, 47.0%
     and 51.0% in effect for the years ended December 31, 2000, 1999 and 1998,
     respectively. Deferred income tax assets and liabilities as of December
     31, 2000 and 1999 were measured at a rate of principally 42.0%. The
     effects of the income tax rate reduction on deferred income tax balances
     as of December 31, 1999 and 1998 are presented below.

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

<TABLE>
                                                                                            Millions of yen
                                                                                ---------------------------------------
                                                                                    2000            1999         1998
                                                                                ------------    -----------   ---------
<S>                                                                             <C>              <C>           <C>
     Deferred tax expense (exclusive of the effects of other components
       listed below)........................................................    Yen  (10,280)      (16,181)      (5,638)
     Adjustments to deferred tax assets and liabilities for enacted changes
       in tax laws and rates................................................              --        10,209        8,014
     Decrease in the beginning-of-the-year balance of the valuation
       allowance for deferred tax assets....................................              --            --         (435)
                                                                                ------------   -----------    ---------
                                                                                Yen  (10,280)       (5,972)       1,941
                                                                                ============   ===========    =========
</TABLE>


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

<TABLE>
                                                                                2000        1999         1998
                                                                              --------    --------      -------
<S>                                                                           <C>         <C>           <C>
     Japanese normal income tax rate.......................................      42.0%       47.0%        51.0%
     Increase (reduction) in income taxes resulting from:
       Expenses not deductible for tax purposes............................       0.9         1.0          0.9
       Tax benefits not recognized on operating losses of subsidiaries.....       0.9         1.2          0.3
       Income of foreign subsidiaries taxed at lower than Japanese
         normal tax rate...................................................      (1.9)       (6.1)        (5.7)
       Tax credit for increased research and development expenses..........      (1.3)       (0.5)        (0.8)
       Effect of enacted changes in tax laws and rates.....................        --         6.5          3.3
       Other...............................................................      (2.2)        4.7          2.7
                                                                               -------       -----        -----
      Effective income tax rate............................................      38.4%       53.8%        51.7%
                                                                               =======       =====        =====
</TABLE>


                                       67
<PAGE>
                          CANON INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)



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

<TABLE>
                                                       Millions of yen
                                                  --------------------------
                                                     2000            1999
                                                  ------------   -----------
<S>                                               <C>              <C>
     Prepaid expenses and other current assets..  Yen  81,789        75,431
     Other assets...............................      110,095        47,211
     Other current liabilities..................         (961)       (1,033)
     Other noncurrent liabilities...............      (16,704)       (5,320)
                                                  -----------     ---------
                                                  Yen 174,219       116,289
                                                  ===========     =========
</TABLE>

     The tax effects of temporary differences that give rise to significant
     portions of the deferred tax assets and deferred tax liabilities at
     December 31, 2000 and 1999 are presented below:

<TABLE>
                                                                                            Millions of yen
                                                                                     ----------------------------
                                                                                         2000             1999
                                                                                     -----------      -----------
<S>                                                                                  <C>              <C>
     Deferred tax assets:
       Inventories - intercompany profits and write-downs........................    Yen  52,279           51,476
       Accrued business tax......................................................          4,587            3,366
       Accrued pension and severance cost........................................         32,421           25,544
       Minimum pension liability adjustments.....................................         45,520           26,155
       Property, plant and equipment - intercompany profits......................          3,840            7,015
       Research and development - costs capitalized for tax purposes.............         24,527           21,371
       Depreciation..............................................................         12,853           11,386
       Other.....................................................................         41,406           32,713
                                                                                     -----------      -----------
           Total gross deferred tax assets.......................................        217,433          179,026
           Less valuation allowance..............................................          6,367            4,191
                                                                                     -----------      -----------
           Net deferred tax assets...............................................        211,066          174,835
                                                                                     -----------      -----------
     Deferred tax liabilities:
       Land including deferred gain on sale......................................         (3,305)          (3,629)
       Unamortized debt issuance cost............................................           (276)            (359)
       Accounts receivable - allowance for doubtful accounts.....................         (5,324)          (3,810)
       Undistributed earnings of foreign subsidiaries and affiliated companies...         (5,899)          (4,471)
       Net unrealized gains on securities........................................        (13,939)         (39,396)
       Other.....................................................................         (8,104)          (6,881)
                                                                                     -----------      -----------
           Total gross deferred tax liabilities..................................        (36,847)         (58,546)
                                                                                     -----------      -----------
           Net deferred tax assets...............................................    Yen 174,219          116,289
                                                                                     ===========      ===========
</TABLE>

     The valuation allowance for deferred tax assets as of January 1, 1999 was
     Yen4,722 million. The net change in the total valuation allowance for the
     years ended December 31, 2000 and 1999 was an increase of Yen2,176 million
     and a decrease of Yen531 million, respectively.

     Based upon the level of historical taxable income and projections for
     future taxable income over the periods which the net deductible temporary
     differences are expected to reverse, management believes it is more


                                       68

<PAGE>

                          CANON INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

     likely than not Canon will realize the benefits of these deferred tax
     assets, net of the existing valuation allowances at December 31, 2000.

     At December 31, 2000, Canon had net operating losses carried forward for
     income tax purposes of approximately Yen10,909 million which were
     available to reduce future income taxes, if any. Approximately Yen9,951
     million of the operating losses expire through 2009 while the remainder
     have an indefinite carryforward period.

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

     Canon has not recognized deferred tax liabilities of approximately
     Yen28,549 million for the portion of undistributed earnings of foreign
     subsidiaries that arose in 2000 and prior years because Canon currently
     does not expect those unremitted earnings to reverse and become taxable
     to the Company in the foreseeable future. Deferred tax liabilities will
     be recognized when Canon expects that it will recover those undistributed
     earnings in a taxable manner, such as through receipt of dividends or
     sale of the investments. As of December 31, 2000, such undistributed
     earnings of these subsidiaries were approximately Yen328,072 million.

(11) Common Stock
     ------------
     During the years ended December 31, 2000, 1999 and 1998, the Company
     issued 4,071,325 shares, 1,249,828 shares and 3,506,936 shares of common
     stock, respectively. The issuance of 3,176,373 shares during the year
     ended December 31, 2000 was in connection with the acquisition of the
     outstanding minority ownership interest of Canon Chemicals Inc. ("Canon
     Chemicals"). The acquisition of the minority interest was consummated on
     November 7, 2000, whereby Canon Chemicals became a wholly-owned
     subsidiary of the Company. The remaining issuance of the shares of the
     Company was in connection with conversion of convertible debt. Conversion
     into common stock of convertible debt issued subsequent to October 1, 1982
     and exercise of warrants were accounted for in accordance with the
     provisions of the Japanese Commercial Code by crediting one-half of the
     conversion price and exercise price to each of the common stock account
     and the additional paid-in capital account.

(12) Legal Reserve and Cash Dividends
     --------------------------------
     The Japanese Commercial Code provides that an amount equal to at least
     10% of appropriations paid in cash be appropriated as a legal reserve
     until such reserve equals 25% of stated capital. This reserve is not
     available for dividends but may be used to reduce a deficit or may be
     transferred to stated capital. Certain foreign subsidiaries are also
     required to appropriate their earnings to legal reserves under the laws
     of the respective countries. Canon's equity in retained earnings or
     deficit of affiliated companies owned 20% to 50% accounted for on the
     equity basis aggregating positive Yen13,130 million at December 31, 2000
     is included in retained earnings.

     Cash dividends and appropriations to the legal reserve charged to
     retained earnings during the years ended December 31, 2000, 1999 and 1998
     represent dividends paid out during those years and the related
     appropriations to the legal reserve. Provision has not been made in the
     accompanying consolidated financial statements for the semiannual
     dividend of Yen12.50 per share, aggregating Yen10,945 million,
     subsequently proposed by the Board of Directors in respect of the year
     ended December 31, 2000, or for the related appropriation to the legal
     reserve.

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

                                       69

<PAGE>

                          CANON INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)


     The amount of retained earnings available for dividends under the
     Japanese Commercial Code is based on the amount recorded in the Company's
     nonconsolidated books of account in accordance with financial accounting
     standards of Japan. The adjustments included in the accompanying
     consolidated financial statements to have them conform with United States
     generally accepted accounting principles, but not recorded in the books
     of account, have no effect on the determination of retained earnings
     available for dividends under the Japanese Commercial Code. Retained
     earnings in the Company's nonconsolidated books of account under the
     Japanese Commercial Code amounted to Yen614,918 million at December 31,
     2000.

(13) Noncash Financing Activities
     In the years ended December 31, 2000, 1999 and 1998, common stock issued
     and additional paid-in capital arising from conversion of convertible
     debt amounted to Yen1,335 million, Yen1,871 million and Yen5,234 million,
     respectively.

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

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

<TABLE>
                                                                               Millions of yen
                                                                 --------------------------------------------
                                                                      2000            1999           1998
                                                                 --------------   ------------    ----------
<S>                                                              <C>               <C>            <C>
     Foreign currency translation adjustments:
       Balance at beginning of year...........................   Yen   (127,148)       (66,372)      (32,644)
       Adjustments for the year.................................         22,999        (60,776)      (33,728)
                                                                 --------------   ------------    ----------
       Balance at end of year...................................       (104,149)      (127,148)      (66,372)
                                                                 --------------   ------------    ----------
     Net unrealized gains on securities:
       Balance at beginning of year.............................         48,699          7,442        10,501
       Adjustments for the year.................................        (34,532)        41,257        (3,059)
                                                                 --------------   ------------    ----------
       Balance at end of year...................................         14,167         48,699         7,442
                                                                 --------------   ------------    ----------
     Minimum pension liability adjustments:
       Balance at beginning of year.............................        (29,858)       (38,555)      (21,890)
       Adjustments for the year.................................        (26,742)         8,697       (16,665)
                                                                 -------------    ------------    ----------
       Balance at end of year...................................        (56,600)       (29,858)      (38,555)
                                                                 -------------    ------------    ----------
     Total accumulated other comprehensive income (loss):
       Balance at beginning of year.............................       (108,307)       (97,485)      (44,033)
       Adjustments for the year.................................        (38,275)       (10,822)      (53,452)
                                                                 -------------    ------------    ----------
       Balance at end of year................................... Yen   (146,582)      (108,307)      (97,485)
                                                                 ==============   ============    ==========
</TABLE>

                                       70
<PAGE>
                          CANON INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)



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

<TABLE>

                                                                                           Millions of yen
                                                                            ---------------------------------------------
                                                                                                 Tax
                                                                            Before-tax        (expense)       Net-of-tax
                                                                              amount         or benefit         amount
                                                                            ------------     ------------     -----------
<S>                                                                         <C>              <C>              <C>
     2000:
       Foreign currency translation adjustments:
         Amount arising during the year on investments in foreign
           entities held at end of year...................................  Yen   25,581           (1,392)         24,189
         Reclassification adjustments for the portion of gains and losses
           realized upon sale or liquidation of investments in foreign
           entities.......................................................        (1,195)               5          (1,190)
                                                                            ------------        ---------       ---------
         Net change in foreign currency translation adjustments during
           the year.......................................................        24,386           (1,387)         22,999
       Net unrealized gains on securities:
         Amount arising during the year on securities held at end of
           year...........................................................       (57,484)          24,409         (33,075)
         Reclassification adjustments for gains and losses realized in
           net income.....................................................        (2,505)           1,048          (1,457)
                                                                            ------------        ---------       ---------
         Net change in net unrealized gains on securities during the
           year...........................................................       (59,989)          25,457         (34,532)
       Minimum pension liability adjustments..............................       (46,107)          19,365         (26,742)
                                                                            ------------        ---------       ---------
       Other comprehensive income (loss)..................................  Yen  (81,710)          43,435         (38,275)
                                                                            ============        =========       =========
</TABLE>

                                       71

<PAGE>
                          CANON INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)


<TABLE>

                                                                                           Millions of yen
                                                                           ----------------------------------------------
                                                                                                 Tax
                                                                            Before-tax        (expense)       Net-of-tax
                                                                              amount         or benefit         amount
                                                                           ------------      -----------      -----------
<S>                                                                        <C>              <C>              <C>
     1999:
       Foreign currency translation adjustments:
         Amount arising during the year on investments in foreign
           entities held at end of year...................................  Yen  (61,023)            239          (60,784)
         Reclassification adjustments for the portion of gains and losses
           realized upon sale or liquidation of investments in foreign
           entities.......................................................             8              --                8
                                                                           -------------     -----------      -----------
         Net change in foreign currency translation adjustments during
           the year.......................................................       (61,015)            239          (60,776)
       Net unrealized gains on securities:
         Amount arising during the year on securities held at end of
           year...........................................................        79,789         (37,914)          41,875
         Reclassification adjustments for gains and losses realized in
           net income.....................................................        (1,246)            628             (618)
                                                                           -------------     -----------      -----------
         Net change in net unrealized gains on securities during the
           year...........................................................        78,543         (37,286)          41,257
       Minimum pension liability adjustments..............................        16,409          (7,712)           8,697
       Other comprehensive income (loss).................................. Yen    33,937         (44,759)         (10,822)
                                                                           =============     ===========      ===========
     1998:
       Foreign currency translation adjustments........................... Yen   (34,402)            674          (33,728)
       Net unrealized gains on securities:
         Amount arising during the year on securities held at end of
           year...........................................................        (9,897)          5,642           (4,255)
         Reclassification adjustments for gains and losses realized in
           net income.....................................................         2,439          (1,243)           1,196
                                                                           -------------     -----------      -----------
         Net change in net unrealized gains on securities during the
           year...........................................................        (7,458)          4,399           (3,059)
       Minimum pension liability adjustments..............................       (34,010)         17,345          (16,665)
                                                                           -------------     -----------      -----------
       Other comprehensive income (loss).................................. Yen  (75,870)          22,418          (53,452)
                                                                           =============     ===========      ===========
</TABLE>

                                       72
<PAGE>

                          CANON INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

(15) Net Income per Share
     --------------------
     A reconciliation of the numerators and denominators of the basic and
     diluted net income per share computations is as follows:

<TABLE>
                                                                                       Millions of yen
                                                                    ----------------------------------------------------
                                                                        2000               1999                 1998
                                                                    ------------       -------------         -----------
<S>                                                                 <C>                <C>                   <C>
     Net income available to common stockholders..................  Yen  134,088              70,234             109,569
     Effect of dilutive securities:
       1% Japanese yen convertible debentures, due 2002...........            45                  45                  43
       1-2/10% Japanese yen convertible debentures, due 2005......            50                  50                  59
       1-3/10% Japanese yen convertible debentures, due 2008......            91                  89                 108
       Other......................................................             -                   -                  (2)
                                                                    ------------       -------------         -----------
     Diluted net income...........................................  Yen  134,274              70,418             109,777
                                                                    ============       =============         ===========

                                                                                     Number of shares
                                                                    ----------------------------------------------------
     Average common shares outstanding............................   872,606,481         870,699,219         868,915,888
     Dilutive effect of:
       1% Japanese yen convertible debentures, due 2002...........     3,322,850           3,649,401           3,991,367
       1-2/10% Japanese yen convertible debentures, due 2005......     3,629,772           4,029,084           4,609,783
       1-3/10% Japanese yen convertible debentures, due 2008......     6,687,888           7,369,714           8,220,954
       Other......................................................         3,937              15,994              25,427
                                                                    ------------       -------------         -----------
     Diluted common shares outstanding............................   886,250,928         885,763,412         885,763,419
                                                                    ============       =============         ===========

                                                                                           Yen
                                                                    ----------------------------------------------------
     Net income per share:
         Basic....................................................  Yen   153.66               80.66              126.10
         Diluted..................................................        151.51               79.50              123.93
</TABLE>

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

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

                                       73
<PAGE>

     Contract amounts of foreign exchange contracts and interest rate swaps at
     December 31, 2000 and 1999 are set forth below:

                                                  Millions of yen
                                             -------------------------
                                                 2000           1999
                                             ------------     --------
     Forwards and swaps:
         To sell foreign currencies......... Yen  361,279      170,931
         To buy foreign currencies..........        9,600       12,110
         Receive-fixed interest rate swaps..       40,000       41,024
         Pay-fixed interest rate swaps......       73,538       66,905

     The Company and certain of its subsidiaries enter into foreign exchange
     forward contracts and currency swaps to hedge the risk of fluctuation in
     foreign currency exchange rates associated with certain trade
     receivables, long-term debt and anticipated sales transactions (including
     firm commitments) denominated in foreign currencies. The terms of these
     foreign exchange contracts rarely extend beyond three months except for
     those related to long-term debt denominated in foreign currencies which
     have the same terms as underlying debts. Interest rate swap contracts are
     generally used by the Company and certain of its subsidiaries to offset
     changes in the rates paid on long-term debt. Interest rate swap contracts
     outstanding at December 31, 2000 mature between 2001 and 2002.

(17) Commitments and Contingent Liabilities
     --------------------------------------
     At December 31, 2000, commitments outstanding for the purchase of
     property, plant and equipment approximated Yen51,656 million. Contingent
     liabilities for guarantees of bank loans to employees and to affiliated
     and other companies amounted to approximately Yen55,202 million.

     Canon occupies sales offices and other facilities under lease
     arrangements accounted for as operating leases. Deposits made under such
     arrangements aggregated Yen19,195 million and Yen20,188 million at
     December 31, 2000 and 1999, respectively, and are reflected in noncurrent
     receivables and restricted funds on the accompanying consolidated balance
     sheets.

     Future minimum lease payments required under noncancellable operating
     leases that have initial or remaining lease terms in excess of one year
     as of December 31, 2000 are as follows:

                                                          Millions of yen
     Year ending December 31:                             ---------------
     2001............................................        Yen 12,854
     2002............................................             9,824
     2003............................................             7,366
     2004............................................             5,327
     2005............................................             4,074
     Later years.....................................             7,364
                                                             ----------
         Total future minimum lease payments.........        Yen 46,809
                                                             ==========

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

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

     Noncurrent receivables and restricted funds
     The fair values of Canon's noncurrent receivables and restricted funds
     are based on the present value of future cash flows through estimated
     maturity, discounted using estimated market discount rates. Their
     carrying amounts at December 31, 2000 and 1999 totaled Yen27,626 million
     and Yen29,771 million, respectively, which approximate fair values.

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

     Derivative financial instruments (see note 16)
     The fair values of derivative financial instruments, consisting
     principally of foreign exchange contracts and interest rate swaps, all of
     which are used for purposes other than trading, are estimated by
     obtaining quotes from brokers.

                                      74
<PAGE>


     The estimated fair values of Canon's financial instruments at December
     31, 2000 and 1999 are summarized as follows:

<TABLE>
                                                                                Millions of yen
                                                           ---------------------------------------------------------
                                                                     2000                             1999
                                                           -------------------------       -------------------------
                                                           Carrying        Estimated       Carrying        Estimated
                                                            Amount        Fair Value        Amount        Fair Value
                                                           ---------      ----------       --------       ----------
<S>                                                      <C>             <C>              <C>            <C>
     Nonderivatives:
         Assets:
           Marketable securities and Investments..........Yen 88,197          88,197        141,546          141,546
         Liabilities:
           Long-term debt, including current installments.  (181,420)       (225,188)      (190,351)        (228,264)

     Derivatives relating to:
         Trade receivables and anticipated sales
         transactions:
           Assets.........................................       293             293          1,385            1,635
           Liabilities....................................   (22,486)        (20,220)          (947)            (207)
         Long-term debt, including current installments:
           Foreign exchange contracts:
             Liabilities..................................        --              --         (2,155)          (2,155)
           Interest rate swaps:
             Assets.......................................       349           1,384            369            2,377
             Liabilities..................................       (49)           (584)           (71)            (103)
</TABLE>


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

(19) Supplementary Expense Information
     ---------------------------------

<TABLE>
                                                                          Millions of yen
                                                               -------------------------------------
                                                                  2000           1999         1998
                                                               -----------     --------     --------
<S>                                                           <C>             <C>          <C>
     Research and development.............................     Yen 194,552      177,922      176,967
     Depreciation of property, plant and equipment........         144,043      155,682      159,888
     Rent.................................................          42,963       48,236       53,923
     Advertising..........................................          67,840       67,544       76,911
     Exchange loss (gain).................................          20,195        3,387       (1,189)
</TABLE>

                                      75
<PAGE>


<TABLE>

                                                                                                                Schedule II

                                                CANON INC. AND SUBSIDIARIES

                                             Valuation and Qualifying Accounts

                                        Years ended December 31, 2000, 1999 and 1998

                                                                                                  Add
                                             Balance at          Add           Deduct           (deduct)         Balance
                                            beginning of      charge to       bad debts       translation       at end of
                                               period          income        written off      adjustments        period
                                            ------------      ---------      -----------      -----------      -----------
                                                                          (Millions of yen)
<S>                                        <C>               <C>            <C>              <C>               <C>
Year ended December 31, 2000:
 Allowance for doubtful Receivables....      Yen 15,089       Yen 4,603       Yen 3,004        Yen  1,174       Yen 17,862
                                             ==========       =========       =========        ==========       ==========
Year ended December 31, 1999:
 Allowance for doubtful Receivables....      Yen 16,435       Yen 4,622       Yen 3,685        Yen (2,283)      Yen 15,089
                                             ==========       =========       =========        ==========       ==========
Year ended December 31, 1998:
 Allowance for doubtful Receivables....      Yen 15,997       Yen 6,275       Yen 4,239        Yen (1,598)      Yen 16,435
                                             ==========       =========       =========        ==========       ==========
</TABLE>


                                      76
<PAGE>



Item 18. Financial Statements

     Not applicable.

Item 19. Financial Statements and Exhibits

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

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

Consolidated financial statements of Canon Inc. and Subsidiaries:

      Independent Auditors' Report............................................49

      Consolidated Balance Sheets as of December 31, 2000 and 1999............50

      Consolidated Statements of Income for the years ended December 31, 2000,
        1999 and 1998.........................................................51

      Consolidated Statements of Stockholders' Equity for the years ended
        December 31, 2000, 1999 and 1998......................................52

      Consolidated Statements of Cash Flows for the years ended December 31,
        2000, 1999 and 1998...................................................53

      Notes to Consolidated Financial Statements..............................54

      Schedule:

      Independent Auditors' Report on Schedule................................49

      Schedule II  Valuation and Qualifying Accounts for the years ended
          December 31, 2000, 1999 and 1998....................................76

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

Exhibit:

      Regulation for Handling of Shares of Canon Inc. (Translation)...........80


                                      77
<PAGE>


                                  SIGNATURES

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




                                                 CANON INC.
                                                 (Registrant)


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


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


Date  June 14, 2001


                                      78
<PAGE>


                                 EXHIBIT INDEX

<TABLE>

                                                                                Subsequently
Exhibit number                               Title                              Numbered Page
--------------                               -----                              -------------
<S>              <C>                                                             <C>
Exhibit 1.1      Regulation for Handling of Shares of Canon Inc. (Translation)..      80
</TABLE>






                                      79