Canon Annual Report 2010

← All annual reports

FY2010 Annual Report · Canon

Loading PDF…

CANON ANNUAL REPORT 2010
Fiscal Year Ended December 31, 2010

FINANCIAL HIGHLIGHTS

Net sales

Operating proﬁ t

Income before income taxes

Net income attributable to Canon Inc.

Net income attributable to Canon Inc.
stockholders per share:

–Basic

–Diluted

Total assets

Millions of yen
(except per share amounts)

Thousands of U.S. dollars
(except per share amounts)

2010

2009

Change (%)

2010

¥3,706,901

¥3,209,201

387,552

392,863

246,603

217,055

219,355

131,647

199.71

106.64

199.70

106.64

+15.5

+78.6

+79.1

+87.3

$45,764,210

4,784,593

4,850,160

3,044,481

2.47

¥3,983,820

¥3,847,557

+3.5

$49,182,963

Canon Inc. stockholders’ equity

¥2,645,782

¥2,688,109

-1.6

$32,663,975

Notes:
1. Canon’s consolidated ﬁ nancial statements are prepared in accordance with U.S. generally accepted accounting principles.
2. U.S. dollar amounts are translated from yen at the rate of JPY81=U.S.$1, the approximate exchange rate on the Tokyo Foreign Exchange Market as of December 30, 2010, solely for the conve-

nience of the reader.

4,481,346

4,156,759

4,094,161

3,706,901

3,209,201

Net Sales
(Millions of yen)

5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

Net Income Attributable to Canon Inc.
(Millions of yen)

488,332

455,325

309,148

246,603

131,647

500,000

400,000

300,000

200,000

100,000

Net Income Attributable to Canon Inc. Stockholders per Share
(Yen)
Diluted

Basic

ROE/ROA
(%)

ROE

ROA

377.59

377.53

341.95

341.84

246.21

246.20

199.71199.70

106.64

400.00

300.00

200.00

100.00

0.00

16.3

16.5

10.6

10.8

11.1

7.3

20.0

15.0

10.0

5.0

9.2

6.3

4.9

3.4

CANON ANNUAL REPORT 2010

CORPORATE PROFILE

Canon develops, manufactures and markets a growing lineup of copying

CONTENTS

TO OUR STOCKHOLDERS

machines, printers, cameras and industrial and other equipment.

MESSAGE FROM THE PRESIDENT

Through these products, the Company meets growing customer needs

that are becoming increasingly diversiﬁ ed and sophisticated. Today, the

CORPORATE GOVERNANCE

Canon brand is recognized and trusted throughout the world.

EXCELLENT GLOBAL CORPORATION PLAN:

In 1996, Canon launched its Excellent Global Corporation Plan

PHASE IV

with the aim of becoming a company worthy of admiration and

respect the world over. Currently, the Company is promoting a

“cross-media imaging” strategy—wherein advanced synergies are

realized between input and output devices. At the same time, Canon

is strengthening its solutions business while nurturing its operations

CORPORATE FUNCTIONS

RESEARCH & DEVELOPMENT
PRODUCTION
SALES & MARKETING
CORPORATE SOCIAL RESPONSIBILITY

in the ﬁ elds of medical equipment and industrial equipment, the

BUSINESS UNITS

latter including intelligent robots, to establish new core businesses.

Canon is working to fulﬁ ll its responsibilities to investors and society,

emphasizing sound corporate governance and stepping up the

OFFICE BUSINESS UNIT
CONSUMER BUSINESS UNIT

INDUSTRY AND OTHERS BUSINESS UNIT

implementation of activities that contribute to environmental and

FINANCIAL SECTION

social sustainability.

CORPORATE PHILOSOPHY: Kyosei

TRANSFER AND REGISTRAR’S OFFICE

STOCKHOLDER INFORMATION

The corporate philosophy of Canon is kyosei. A concise deﬁ nition of

MAJOR CONSOLIDATED SUBSIDIARIES

110

111

this word would be “Living and working together for the common

good.” But Canon’s deﬁ nition is broader: kyosei is “All people, regard-

less of race, religion or culture, harmoniously living and working

together into the future.” Unfortunately, the presence of imbalances

in the world in such areas as trade, income levels and the environ-

ment hinders the achievement of kyosei.

Addressing these imbalances is an ongoing mission, and Canon is

doing its part by actively pursuing kyosei. True global companies

must foster good relations, not only with their customers and the

communities in which they operate, but also with nations; and they

need to address environmental issues worldwide. In addition, global

companies must bear responsibility for the impact of their activities

on society. For this reason, Canon’s goal is to contribute to global

prosperity and to people’s well-being, which will lead to continuing

growth and bring the world closer to achieving kyosei.

CORPORATE GOAL

Canon sees itself growing and prospering over the next 100, even

200, years. To realize this goal, the Company is implementing its

Excellent Global Corporation Plan, and the year 2011 saw our launch

of this plan’s Phase IV. Building on the ﬁ nancial strengths that it has

continuously reinforced through the implementation of the plan,

Canon aims to attain the status of being among the top 100 global

Cover Photo:
The advanced-amateur model, EOS 60D complemented Canon’s

existing digital SLR lineup, contributing to increased sales volume

and expanded market share. The EOS 60D offers such advanced

features as the Vari-angle Clear View LCD monitor and full-HD

companies in terms of key performance indicators.

video capability.

CANON ANNUAL REPORT 2010

TO OUR STOCKHOLDERS

Targeting
Sound Growth
Anew
through Rapid
Transformation

Under a new slogan, “Aiming for the Summit—Speed & Sound

Growth,” Canon will redouble its efforts to join the ranks of the

world’s top 100 companies in terms of all key performance indi-

cators during the ﬁ ve-year Phase IV of the Excellent Global

Corporation Plan.

Through the implementation of six key strategies over Phase IV,

we aim to achieve consolidated net sales of more than ¥5 trillion

by 2015.

CANON ANNUAL REPORT 2010

2010 Overview

In 2010, we completed Phase III, further enhancing our

The global economy continued on a path toward mild recovery

corporate constitution. Achieving our goal of making 2010

in 2010, supported by growth in China, India and other emerg-

the ﬁ rst year in a new era of growth for Canon, we were

ing markets. The U.S. economy continued to recover gradually

able to go on the offensive despite the lingering effects of

while Europe showed signs of a turnaround. Although the

the global recession.

Japanese economy had been picking up gradually, the recovery

came to a standstill due to deﬂ ation and the strong yen.

Times are changing.
Over the next ﬁ ve years of Phase IV, we will
undergo a transformation, opening new
gateways to the next generation of Canon.

2010 Performance Results

on our performance, reducing net sales and operating proﬁ t

In 2010, consolidated net sales increased 15.5% year on

by ¥193.9 billion and ¥127.4 billion, respectively.

year to ¥3,706.9 billion, and the gross proﬁ t ratio rose 3.6

Despite the yen’s sharp appreciation in the second half,

points to 48.1%. Operating proﬁ t jumped 78.6% to ¥387.6

Canon aggressively introduced new products and contin-

billion. By segment,* in the Ofﬁ ce Business Unit, sales grew

ued to reduce costs while improving production turnover in

20.8% to ¥1,987.3 billion while operating proﬁ t surged

line with increased production. These activities enabled us

27.9% to ¥293.3 billion. In the Consumer Business Unit,

to expand our proﬁ ts substantially. Also, comprehensive

sales edged up 6.9% to ¥1,391.3 billion while operating

cash ﬂ ow management allowed us to enhance manage-

proﬁ t climbed 29.7% to ¥238.1 billion. As for the Industry

ment efﬁ ciency and accumulate ample cash on hand.

and Others Business Unit, sales totaled ¥433.0 billion, up

Canon continues its proactive approach to steadily

20.9% year on year, and operating loss totaled ¥9.8 billion,

returning proﬁ ts to stockholders while taking into consider-

an improvement of ¥66.1 billion. By geographic region,

ation future investments, free cash ﬂ ow and consolidated

sales in the Americas grew 14.4% to ¥1,023.3 billion; sales

business performance. For 2010, Canon increased its full-

in Europe increased 17.8% to ¥1,172.5 billion; in Japan,

year dividend to ¥120 per share, up ¥10 from 2009.

sales dipped 0.9% to ¥695.7 billion; and in Asia and Oceania

* Segment sales results include intersegment sales.

(excluding Japan), sales grew 32.0% to ¥815.4 billion.

Selling, general and administrative expenses increased

Achievements in Previous Phases

19.2% to ¥1,079.7 billion while R&D expenses rose 3.7% to

In Phase I, which started in 1996, we worked to strengthen

¥315.8 billion. Net income attributable to Canon Inc. leapt

the Company’s ﬁ nancial standing, making efforts to change

87.3% to ¥246.6 billion, while net income attributable to

our mindset with a focus on total optimization and proﬁ t-

Canon Inc. stockholders per share amounted to ¥199.71 and

ability. In Phase II, which began in 2001, as the world was

¥199.70 in basic and diluted terms, respectively.

overtaken by the wave of digitization, we reinforced Canon’s

The average value of the yen during the year was ¥87.40

product competitiveness through a new R&D infrastructure

against the U.S. dollar, a year-on-year appreciation of

and the in-house production of key components.

approximately ¥6.00, and ¥114.97 against the euro, a year-

In Phase III, launched in 2006, we worked to expand

on-year increase of approximately ¥15.00. The strong yen

Canon’s scale with the aim of becoming a truly excellent

against these and other currencies put downward pressure

global company and achieving “sound growth.” We

CANON ANNUAL REPORT 2010

improved the proﬁ tability of existing businesses

and established new businesses through innova-

tion, but, hit by the global recession in 2008, our

record of eight consecutive years of sales and

proﬁ t growth came to an end.

To overcome this crisis, we temporarily revised

our strategy, shifting our focus in 2010 to improv-

ing management quality. We accelerated cost

reductions, facilitated higher capital-investment

efﬁ ciencies and promoted inventory reductions

through the establishment of advanced supply

chain management (SCM). These initiatives proved

effective, enabling Canon to maintain a high stock-

holders’ equity ratio and accumulate retained earn-

ings and cash and cash equivalents. Furthermore, we

joined the global top 100 companies in terms of

market value.

Future Business Environments

2. Developing new business through globalized diversiﬁ ca-

Despite such uncertainties as high unemployment in the

tion and establishing the Three Regional Headquarters

United States, ﬁ nancial instability in Europe, and persistent

management system

deﬂ ation in Japan, advanced nations are expected to con-

3. Establishing a world-leading globally optimized produc-

tinue moving toward gradual economic recovery.

tion system

Meanwhile, China, India and other emerging nations are

4. Comprehensively reinforcing global sales capabilities

expected to sustain their steady economic growth. It is

5. Building the foundations of an environmentally advanced

apparent that these emerging nations will drive the growth

corporation

of the global economy. Also, looking at social and industrial

6. Imparting a corporate culture, and cultivating human

trends, the acceleration of information communication

resources beﬁ tting a truly excellent global company

technology (ICT) and increasing awareness of environmen-

tal issues will play increasingly important roles. As corpora-

In line with these strategies, we have set the following

tions focus their energies on these growing ﬁ elds, global

targets for 2015, the ﬁ nal year of Phase IV.

competition in these areas is expected to further intensify.

Strategies for Phase IV

Net sales:

Operating proﬁ t ratio:

Under the new slogan “Aiming for the Summit—Speed &

Net income ratio:

Sound Growth,” Canon aims to realize rapid transformation

Stockholders’ equity ratio:

in anticipation of the changes of the times. Through this

¥5 trillion or more

20% or more

10% or more

75% or more

transformation, we will again take on the challenge of

By achieving these targets, Canon aims to renew itself

joining the world’s top 100 companies in terms of all key

and become a truly excellent global corporation. I would like

performance indicators. To this end, we have formulated six

to ask you all for your continued support and understanding.

strategies, as follows:

1. Achieving the overwhelming No. 1 position in all core busi-

nesses and expanding related and peripheral businesses

Fujio Mitarai
Chairman and CEO
Canon Inc.

CANON ANNUAL REPORT 2010

MESSAGE FROM THE PRESIDENT

Economies and industries worldwide are undergoing drastic changes.

Aiming to achieve our targets for Phase IV of the Excellent Global

Corporation Plan, we will take on new challenges, with the courage and

conviction to change.

2011 marks the start of Phase IV of the Excellent Global

In the Ofﬁ ce Business Unit, we aim to bolster our solu-

Corporation Plan. In the course of working toward our targets

tions business through such initiatives as forming alliances

for 2015, we ﬁ rst aim to achieve in 2012 results that exceed our

with HP and other IT powerhouses, promoting Canon’s

record-high performance in 2007. To this end, we will take on

proprietary Managed Print Services (MPS) and developing

new challenges to reach a higher summit.

application software that supports cloud services. Mean-

while, by enhancing collaboration with Océ N.V., which

Continuous Introduction of Innovative Products and Services

became a consolidated subsidiary in 2010, we will expand

Canon will continue to launch innovative products and

our lineups of digital production printers and large-format

services to attain the overwhelming No. 1 position in all

inkjet printers while generating greater synergies in market-

existing core businesses. To fulﬁ ll this goal, in all major prod-

ing by accelerating our solutions business.

uct categories, we will strengthen the solutions and serv-

Turning to the Consumer Business Unit, we will continue

ices we provide based on our powerful hardware portfolios

to improve the video capabilities of our digital SLR cameras

and thereby expand our business domains.

while reinforcing our software offerings that facilitate the

CANON ANNUAL REPORT 2010

effective use of the cameras in photo studios and other

service. These IT reforms will have a substantial, positive

settings. Also, in response to wide-ranging needs for image

impact on Canon’s business management.

output through electrophotographic and inkjet printers, we

will enhance and strengthen our product lineups, from

Continuous Enhancements of Product Quality

personal-use to commercial-use models, by promoting a

Product quality is the lifeline of all manufacturers. Even a

total printing strategy. Under this strategy, we will target

single minor product defect could potentially undermine

imaging demand associated with the Internet and a wide

the credibility—indeed, the very foundations—of a corpora-

array of input devices. As a ﬁ rst step, anticipating further

tion. Therefore, we must remain committed to maintaining

growth in the retail photo-ﬁ nishing and commercial printing

and improving the quality of our products across the Canon

markets along with the spread of digital cameras, Canon

Group. Canon has established a comprehensive quality-

will enter the commercial photo printer market.

information management system spanning all processes,

from design to mass-production. Based on this system, and

Aggressive Business Expansion in Emerging Markets

by strengthening cooperation throughout the Company, we

Emerging markets in China, India, ASEAN nations and other

will continue to reinforce our structure to prevent critical

regions are expected to realize further expansion. The

product quality problems.

Company is carrying out ﬁ ne-tuned initiatives designed to

accommodate needs speciﬁ c to individual markets and cus-

Toward Becoming a Truly Excellent Corporation

tomers, from R&D to sales and service. For example, we will

In the ﬁ rst year of Phase IV, we will work to further solidify

launch products exclusively designed for speciﬁ c markets and

our business foundation. Meanwhile, we will bolster efforts

customers, executing sales strategies tailored to the character-

to develop human resources to ensure that Canon employ-

istics of each market.

ees will be able to function as key players in the global

market. We will train employees entrusted with the future

Targeting Improved Productivity

of Canon by making use of practical settings, including local

We are working to establish an optimal global production

sales and production operations worldwide, particularly in

structure. Under this structure, we will manufacture prod-

rapidly growing Asian markets.

ucts worldwide at the most rational locations as deter-

We will further expand our ﬁ eld of corporate activities.

mined by such factors as cost, logistics, procurement,

Accordingly, the need for us to fulﬁ ll our social responsibilities

quality and workforce. Our focus on improving productivity

will become more important than ever. Under our corporate

through the promotion of automated and in-house produc-

philosophy of kyosei, we will continue to promote activities to

tion also plays an important role within our strategy to

reduce the environmental burden of our corporate activities

realize optimal global production.

and products. At the same time, we aim to further bolster our

We have signiﬁ cantly enhanced productivity for laser

compliance and internal controls.

printer toner cartridges through the automation of several

Toward the achievement of our 2015 net sales target of

hundred processes, from parts molding and assembly to

more than ¥5 trillion, we are amassing our Groupwide

inspection and packaging. We are now working to further

strengths. Capitalizing on the sound ﬁ nancial constitution

improve the reliability of these automated machines and

that we have realized to date, with the courage and convic-

realize complete automation, thereby reinforcing our prod-

tion to change, we will continue to implement initiatives that

uct competitiveness.

will empower us to realize additional, sustainable growth. We

Through our IT reforms targeting total optimization, we

ask for your continued support and understanding.

have carried out a range of initiatives, including the stan-

dardization of 3D-CAD systems and the integration of 3D-

CAD with our product data management (PDM) system.

Such system integration has enabled us to share and use

information throughout the entire product lifecycle, from

procurement, development and production to sales and

Tsuneji Uchida
President and COO
Canon Inc.

CANON ANNUAL REPORT 2010

CORPORATE GOVERNANCE

Canon maintains sound corporate governance as part of efforts to maximize its
stockholders’ value and become a truly excellent global corporation.

Basic Policy and Corporate Governance Structure
Canon recognizes that management supervision functions and
management transparency are vital to strengthening its corpo-
rate governance and further raising corporate value. Canon’s
basic governance structure comprises the General Meeting of
Shareholders, the Board of Directors and the Board of Corpo-
rate Auditors. Furthermore, the Executive Committee and
management committees are dedicated to addressing key
issues. All of these bodies work together to ensure the appropriate
management of the Group through an internal auditing structure
underpinned by the independent Corporate Audit Center and an
information disclosure system for management activities.

Board of Directors
Important business matters are discussed and ratiﬁ ed during
meetings of the Board of Directors and Executive Committee.
As of December 31, 2010, the board consisted of 17 directors.
In order to facilitate more practical and efﬁ cient decision
making, the board is entirely composed of internal directors
who have well-developed knowledge of the Company’s affairs.
Also, the board is supported by various management commit-
tees that address important management issues in their
speciﬁ c ﬁ elds. These committees complement the Company’s

management system by business unit, facilitate efﬁ cient
decision making and realize a mutual supervisory function for
such matters as compliance and ethics.

Executive Ofﬁ cer System
Canon is endeavoring to realize more ﬂ exible and efﬁ cient
management operations by maintaining an appropriately sized
organization of directors and promoting capable human re-
sources with accumulated executive knowledge across spe-
ciﬁ c business areas.
Executive ofﬁ cers are appointed and dismissed by the Board
of Directors and have a term of ofﬁ ce of one year. The number
of executive ofﬁ cers was 13 as of December 31, 2010.

Auditing System
Canon has ﬁ ve corporate auditors, including three outside
corporate auditors who have no personal or business afﬁ lia-
tions with the Company. Canon has notiﬁ ed the stock exchang-
es in Tokyo, Osaka, Nagoya, Fukuoka and Sapporo of the
designation of these outside corporate auditors as indepen-
dent auditors, as provided under the regulations of the stock
exchanges. Corporate auditors’ duties include attending meet-
ings of the Board of Directors and of the Executive Committee,

Directors & Corporate Auditors (as of December 31, 2010)

Chairman & CEO

Fujio Mitarai

President & COO

Tsuneji Uchida

Executive Vice President & CFO

Toshizo Tanaka
Senior General Manager, External Relations Center
Senior General Manager, Corporate
Communications Center
Vice Chairman, Supervisory Board of Océ N.V.

Executive Vice President & CTO

Toshiaki Ikoma
Group Executive, Corporate R&D Headquarters
Chief Executive, Optical Products Operations

Senior Managing Directors

Kunio Watanabe
Group Executive, Corporate Planning
Development Headquarters

Yoroku Adachi
President & CEO, Canon U.S.A., Inc.

Toshio Homma
Chief Executive, L Printer Products Operations

Yasuo Mitsuhashi
Chief Executive, Peripheral Products Operations

Masaki Nakaoka
Chief Executive, Ofﬁ ce Imaging Products Operations

Managing Directors

Tomonori Iwashita
Group Executive, Environment Headquarters
Group Executive, Quality Management Headquarters

Masahiro Osawa
Group Executive, Global Procurement Headquarters
Group Executive, General Affairs Headquarters

Shigeyuki Matsumoto
Group Executive, Device Technology Development
Headquarters

Katsuichi Shimizu
Chief Executive, Inkjet Products Operations

Ryoichi Bamba
President, Canon Europa N.V.
President, Canon Europe Ltd.

Haruhisa Honda
Group Executive, Manufacturing Headquarters

Hideki Ozawa
President & CEO, Canon (China) Co., Ltd.

Masaya Maeda
Chief Executive, Image Communication Products
Operations

Corporate Auditors

Keijiro Yamazaki
Shunji Onda
(Outside)
Tadashi Ohe
Kazunori Watanabe
Kuniyoshi Kitamura

CANON ANNUAL REPORT 2010

Governance Structure (as of December 31, 2010)

Canon Inc.

General Meeting of Shareholders

Board of Directors

Representative Directors

Chairman & CEO

President & COO

Executive Vice President & CFO

Subsidiaries &
Subsidiaries &
Affiliates
Affiliates

Executive Officers

Board of Corporate Auditors

Executive Committee

Corporate Audit Center

Management Strategy Committee

New Business Development Committee

Headquarters Administrative Divisions

Corporate Ethics and Compliance Committee

Internal Control Committee

Disclosure Committee

Office Business Unit

Consumer Business Unit

Industry and Others Business Unit

Marketing Subsidiaries & Affiliates

Manufacturing Subsidiaries & Affiliates

R&D Subsidiaries & Affiliates

listening to business reports from directors, carefully examin-
ing documents related to important decisions and conducting
strict audits of the Group’s business and assets. Corporate
auditors also work closely with accounting auditors and the
Corporate Audit Center, which is in charge of monitoring the
Company’s compliance, risk management and internal control
systems in addition to providing assessments and recommen-
dations as required.

Internal Control Committee
In response to the Sarbanes-Oxley Act, including Section 404,
which came into force during 2006, Canon continues to

reinforce internal control systems and implement appropriate
measures. The Internal Control Committee is responsible for
Groupwide internal controls, including those pertaining to
ﬁ nancial reporting.

In order to strengthen internal controls, Canon conducts
comprehensive evaluations of internal controls across areas
that include accounting, management oversight, legal compli-
ance, IT systems and the promotion of corporate ethics. As of
December 31, 2010, internal control over ﬁ nancial reporting
has been assessed as effective by the management and an
independent registered public accounting ﬁ rm. (Please refer to
pages 107 and 109.)

Compliance brieﬁ ng at Canon Hi-Tech (Thailand) Ltd.

Compliance meeting at Canon Deutschland GmbH

CANON ANNUAL REPORT 2010

Other Corporate Governance Committees
The Corporate Ethics and Compliance Committee, in addition to
the Disclosure Committee, is the key body of Canon’s manage-
ment committees. The Corporate Ethics and Compliance Com-
mittee discusses and approves corporate ethics and compliance
policies while monitoring the implementation of these policies.
The Disclosure Committee works to ensure strict compliance
with disclosure regulations as prescribed by stock exchanges.

Compliance
Shortly after its founding, Canon established the San-Ji, or
“Three Selfs” spirit—namely: “self-motivation,” or taking the
initiative and being proactive in all things; “self-management,”
or conducting oneself responsibly and being accountable for
all one’s actions; and “self-awareness,” or understanding one’s
situation and role in it. These principles remain the basis for
employee education and provide the platform for the Canon
Group Code of Conduct.

Recognizing the importance of safeguarding personal infor-
mation, Canon does its utmost to protect this valuable form of
information asset in the course of fulﬁ lling its social responsibili-
ties. With the aim of keeping its employees informed and aware,
the Company conducts e-learning sessions as part of its per-
sonal information protection education programs every year.

Disclosure
Canon makes every effort to disclose information on its man-
agement and business strategies as well as its performance
results to all stakeholders in an accurate, fair and timely man-
ner. To this end, Canon holds regular brieﬁ ngs and posts the
latest information on its website together with a broad range of
disclosure materials.
Canon has formulated its own Disclosure Guidelines and
established the Disclosure Committee, which makes decisions
regarding information disclosure, including necessity, content
and timing. The Disclosure Committee makes such decisions

Signiﬁ cant Differences in Corporate Governance Practices between Canon and U.S. Companies Listed on the NYSE

Section 303A of the New York Stock Exchange (the “NYSE”)
Listed Company Manual (the “Manual”) provides that compa-
nies listed on the NYSE must comply with certain corporate
governance standards. However, foreign private issuers
whose shares have been listed on the NYSE, such as Canon
Inc. (the “Company”), are permitted, with certain exceptions,
to follow the laws and practices of their home country in
place of the corporate governance practices stipulated under
the Manual. In such circumstances, the foreign private issuer
is required to disclose the signiﬁ cant differences between the
corporate governance practices under Section 303A of the
Manual and those required in Japan. A summary of these
differences as they apply to the Company is provided below.

1. Directors
Currently, the Company’s Board of Directors does not have
any director who could be regarded as an “independent
director” under the NYSE Corporate Governance Rules for U.S.
listed companies. Unlike the NYSE Corporate Governance
Rules, the Corporation Law of Japan (the “Corporation Law”)
does not require Japanese companies with a board of corpo-
rate auditors such as the Company, to appoint independent
directors as members of the board of directors. The NYSE
Corporate Governance Rules require non-management
directors of U.S. listed companies to meet at regularly sched-
uled executive sessions without the presence of manage-
ment. Unlike the NYSE Corporate Governance Rules, however,
the Corporation Law does not require companies to imple-
ment an internal corporate organ or committee comprised

solely of independent directors. Thus, the Company’s Board of
Directors currently does not include any non-management
directors.

2. Committees
Under the Corporation Law, the Company may choose to:
(i) have an audit committee, nomination committee and
compensation committee and abolish the post of corporate
auditors; or

(ii) have a board of corporate auditors.
The Company has elected to have a board of corporate
auditors, whose duties include monitoring and reviewing the
management and reporting the results of these activities to
the stockholders or Board of Directors of the Company. While
the NYSE Corporate Governance Rules provide that U.S. listed
companies must have an audit committee, nominating com-
mittee and compensation committee, each composed en-
tirely of independent directors, the Corporation Law does not
require companies to have speciﬁ ed committees, including
those that are responsible for director nomination, corporate
governance and executive compensation.
The Company’s Board of Directors nominates candidates
for directorships and submits a proposal at the General
Meeting of Shareholders for stockholder approval. Pursuant
to the Corporation Law, the stockholders then vote to elect
directors at the meeting. The Corporation Law requires that
the total amount or calculation method of compensation for
directors and corporate auditors be determined by a resolution

CANON ANNUAL REPORT 2010

after receiving reports on information that might need to be
disclosed from the person in charge of the disclosure working
group at each headquarters.

Countering Antisocial Forces
Canon has formulated a basic policy stipulating that no Canon
Group companies shall maintain relationships of any kind with
antisocial forces that represent a threat to social order and
security. To uphold this basic policy, Canon has established
a department dedicated to activities aimed at countering such
parties while reinforcing cooperative ties with applicable public
authorities. In addition, Canon’s Employment Regulations include
a clause prohibiting such relationships, and the Company con-
tinues to step up efforts to ensure strict employee adherence.

Risk Management
As Canon pursues business expansion in various ﬁ elds on a
global scale, the business and other risks to which it may be

exposed continue to diversify. With the goal of eliminating such
risks altogether, while honoring the trust placed in it by its
stakeholders, Canon works diligently to avoid or minimize its
exposure, to this end assigning speciﬁ cally designated man-
agement committees to address key issues.

In particular, the Executive Committee and various manage-

ment committees engage in careful discussions regarding
signiﬁ cant risk factors. The Corporate Audit Center preemp-
tively identiﬁ es risk factors through audit activities. Also, Canon
formulates in-house rules to guard against those risks and, in
accordance with the policies formulated by the Internal Control
Committee, strives to identify and assess relevant risks associ-
ated with individual business processes.

of the General Meeting of Shareholders respectively, unless
the amount or calculation method is provided under the
Articles of Incorporation. As the Articles of Incorporation of
the Company do not provide an amount or calculation meth-
od, the amount of compensation for the directors and corpo-
rate auditors of the Company is determined by a resolution of
the General Meeting of Shareholders. The allotment of com-
pensation for each director from the total amount of compen-
sation is determined by the Company’s Board of Directors,
and the allotment of compensation to each corporate auditor
is determined by consultation among the Company’s corpo-
rate auditors.

3. Audit Committee
The Company avails itself of paragraph (c)(3) of Rule 10A-3 of
the Security Exchange Act, which provides that a foreign
private issuer which has established a board of corporate
auditors shall be exempt from the audit committee require-
ments, subject to certain requirements which continue to be
applicable under Rule 10A-3.
Pursuant to the requirements of the Corporation Law, the
stockholders elect the corporate auditors by resolution of a
general meeting of shareholders. The Company currently has ﬁ ve
corporate auditors, although the minimum number of corporate
auditors required pursuant to the Corporation Law is three.
Unlike the NYSE Corporate Governance Rules, Japanese
laws and regulations, including the Corporation Law, do not
require corporate auditors to be experts in accounting or to
have any other area of expertise. Under the Corporation Law,

a board of corporate auditors may determine the auditing
policies and methods for investigating the business and
assets of a company, and may resolve other matters concern-
ing the execution of the corporate auditor’s duties. The Board
of Corporate Auditors prepares auditors’ reports and may
veto a proposal for the nomination of corporate auditors,
accounting auditors and the determination of the amount of
compensation for the accounting auditors put forward by the
Board of Directors.
Under the Corporation Law, the half or more of a compa-
ny’s corporate auditors must be “outside” corporate auditors.
These are individuals who are prohibited to have ever been a
director, executive ofﬁ cer, manager, or employee of the
Company or its subsidiaries. The Company’s current corpo-
rate auditor system meets these requirements. Among the
ﬁ ve members on the Company’s Board of Corporate Auditors,
three are outside corporate auditors. The qualiﬁ cations for an
“outside” corporate auditor under the Corporation Law are
different from the audit committee independence require-
ment under the NYSE Corporate Governance Rules.

4. Shareholder Approval of Equity Compensation Plans
The NYSE Corporate Governance Rules require that shareholders
be given the opportunity to vote on all equity compensation
plans and any material revisions of such plans, with certain
limited exceptions. Under the Corporation Law, a company is
required to obtain stockholder approval regarding the stock
options to be issued to directors and corporate auditors as part
of remuneration of directors and corporate auditors.

CANON ANNUAL REPORT 2010

EXCELLENT GLOBAL CORPORATION PLAN: PHASE IV

CANON ANNUAL REPORT 2010

CONTENTS

Overview

Six Key Strategies for Phase IV

Photo:

Through the Canon-Kyoto University Joint Research Project

(CK Project), Canon is advancing R&D for medical imaging

systems—one of its next-generation core businesses.

CANON ANNUAL REPORT 2010

O VERVI EW

In 2011, Canon launched Phase IV of its Excellent Global
Corporation Plan, which will continue through 2015. Under the
new slogan “Aiming for the Summit—Speed & Sound Growth,”
Canon aims to rank among the world’s top 100 companies in
terms of key performance indicators.

Looking Back with a Focus on the Future

Key Strategies for Phase IV

The Excellent Global Corporation Plan comprises strategies

Globalization and diversiﬁ cation—these are the two basic

and initiatives consistent with Canon’s corporate philosophy

management strategies that have guided Canon since the

of kyosei. Under this plan, Canon has worked to become

Company’s founding. In Phase IV, we will combine these

a truly excellent company that contributes to society

policies and embark upon “globalized diversiﬁ cation” based

through technological advances—a company that is ad-

on the following six key strategies.

mired and respected worldwide. Although we faced various

challenges over the three ﬁ ve-year phases up to 2010,

implementing management reforms in each phase, we

succeeded in becoming what we are today.

During Phase IV of the Excellent Global Corporation Plan,

Canon aims to post business results in 2012 that exceed

the record performance it achieved in 2007. In addition, by

2015, the ﬁ nal year of Phase IV, Canon aims to realize net

sales of more than ¥5 trillion, an operating proﬁ t ratio of

more than 20% and a net income ratio of more than 10%.

To meet these targets, we will develop our medical and

industrial ﬁ elds into new business pillars. We will also con-

tinue our efforts to improve such basic manufacturing

functions as R&D, production, and sales and marketing in

order to keep abreast of ever-accelerating technological

advances. For R&D, in particular, we will build a Three Re-

gional Headquarters management system with innovation

centers based in Japan, the United States and Europe. Under

this system, Canon will carry out development and manu-

facturing activities in each region, and market the resulting

products globally.

Achieving the overwhelming No. 1 posi-
tion in all core businesses and expand-
ing related and peripheral businesses

Developing new business through glo-
balized diversiﬁ cation and establishing
the Three Regional Headquarters man-
agement system

Establishing a world-leading globally
optimized production system

Comprehensively reinforcing global
sales capabilities

Building the foundations of an environ-
mentally advanced corporation

Imparting a corporate culture, and culti-
vating human resources beﬁ tting a truly
excellent global company

External Rankings
•Financial Times Global 500

(May 29/30, 2010 issue)

Market value ranking: 93

(7th in the Technology Hardware & Equipment sector)

•FORTUNE Global 500

(July 26, 2010 issue)

Revenues ranking: 216
Proﬁ ts ranking: 202

FORTUNE Global 500 is a registered trademark of FORTUNE Magazine, a division of
Time Inc. in the United States of America.

S IX K EY STRATEGIES FOR PHA SE IV

Achieving the overwhelming No. 1 position in all core businesses
and expanding related and peripheral businesses

CANON ANNUAL REPORT 2010

imageRUNNER ADVANCE-based solutions contributing to Sodexo, France-based integrated food and facilities management service provider

Canon’s current core businesses include digital cameras,

aim for the No. 1 position in this ﬁ eld. In inkjet printers, we

laser printers, ofﬁ ce network MFDs, inkjet printers and

plan to improve our products’ compatibility with smart-

semiconductor lithography equipment. In these segments,

phones and other new information terminals as well as with

Canon will continue to launch innovative products and

new applications. In this way, we will work to meet ever-

expand sales through strategic solutions and services,

diversifying customer needs while continuing to enhance the

thereby attaining the overwhelming No. 1 position world-

operability of these printers.

wide in all of them. At the same time, we will promote

diversiﬁ cation to develop related and peripheral

business ﬁ elds.

In the Ofﬁ ce Business Unit, in addition to intro-

ducing competitive products within our mainstay

imageRUNNER ADVANCE-series lineup, we will

strengthen our solutions, software and service

offerings in each business area. In this way, we aim

to transform this segment into a more comprehen-

sive ofﬁ ce equipment business in response to the

changing times towards the establishment of a

greater revenue base. And in the course of these

developments, M&A will deﬁ nitely be an option.

Also, through closer collaboration with Océ, we will

step up our technological cooperation, comple-

menting each other’s product portfolios and sales

channels to realize concrete synergies.

As for the Consumer Business Unit, as the video

capabilities of digital SLR cameras advance, we will

PHOTOPRESSO online photo service in Japan, a digital camera-related business

CANON ANNUAL REPORT 2010

Developing new business through globalized diversiﬁ cation and
establishing the Three Regional Headquarters management system

Océ N.V., Canon’s new consolidated subsidiary, develops digital production printers.

Canon will establish innovation centers not only in Japan but in

radiation doses. Canon aims to become the industry leader

the United States and Europe. We will develop fundamental

in the digital radiography segment for both static and dy-

technologies and region-speciﬁ c products and market these

namic medical imaging. As for ophthalmic equipment,

products through our global sales network. While acquiring

leveraging synergies realized through the 2010 integration

new technologies and businesses through M&A, we will accel-

of OPTOPOL Technology S.A., we will expand our lineup of

erate the establishment of our two next-generation business

Optical Coherence Tomography (OCT) systems, essential for

ﬁ elds—namely, medical equipment and industrial equipment.

advanced medical examinations for lifestyle-related and

We have continuously led the world of imaging, and we

other diseases. Looking to new areas, through the promo-

will reinforce our visualization technologies through our

tion of the Canon-Kyoto University Joint Research Project

innovative sensor and image-processing technologies,

(CK Project), Canon is working to develop innovative medi-

developing medical imaging into a new business pillar. For

cal systems, including optical ultrasound diagnostic sys-

example, looking at our existing digital radiography systems,

tems that enable the early detection of cancer.

we have applied our proprietary technologies to realize

As for industrial equipment, we will bolster our existing

high-resolution, high-speed dynamic imaging with reduced

businesses Groupwide. Also, we will strengthen our R&D

efforts for Artiﬁ cial Intelligence (AI) technologies that enable

machines to better recognize human behavior and thinking.

These technologies include Super Machine Vision—imaging

technology surpassing the capabilities of human vision—

and Mixed Reality (MR) technology. By integrating these

technologies through the use of information communica-

tion technology (ICT), we aim to develop a portfolio of

comprehensive solutions for all manufacturing processes.

In the long term, these technologies have the potential to

help Canon make inroads into the security and safety ﬁ eld,

Super Machine Vision goes beyond the capabilities of human vision.

which includes risk prediction and nursing care.

CANON ANNUAL REPORT 2010

Establishing a world-leading globally optimized
production system

With the launch of new plant operations at Canon Virginia, Inc., Canon has established a toner cartridge SCM cycle, from production to recycling, in the United States.

By reviewing our global operations and comprehensively

cycles similar to those operated by Canon Virginia. Further-

assessing the status of every aspect of our business, in-

more, we will promote “man-machine cell” production

cluding costs, logistics, procurement, quality and workforce,

systems and in-house production while continuing to

we will reorganize our worldwide allocation of production

improve the quality of our products.

bases from a long-term perspective and work to achieve an

optimal production structure.

In January 2010, Canon Virginia, Inc. began the automated

production of toner cartridges. With this,

Canon has achieved toner cartridge supply

chain management (SCM) in the United

States, handling all the processes locally,

from production and sales to collection and

recycling. The establishment of a globally

optimized production system is predicated

on the promotion of automated processes

and total automation. In toner cartridge

production, we will further enhance the

capabilities of our automated machines and

accelerate their use for production in Eu-

rope and Asia, which is expected to be-

come an even bigger market. Regarding

other products—particularly those that are

generating, or will generate, signiﬁ cant

demand and for which automated produc-

tion is viable—we plan to develop SCM

In-house production of a mold at Canon (Suzhou) Inc.

CANON ANNUAL REPORT 2010

4. Comprehensively reinforcing global sales capabilities

Canon is diversifying service operations in China while expanding its after-sales service bases there through the establishment of Quick Service Stations.

Economic growth centers are shifting from Europe and the

work to expand sales in India, Indonesia and other ASEAN

United States to Asia, South America, Africa and other

nations, along with Brazil, Russia and African nations. In all

emerging nations as well as to resource-producing nations.

of our core businesses, we will enhance sales of our prod-

Accurately capturing such trends, we will strive to boost

ucts, giving due consideration to the characteristics and

sales in these regions and nations. More speciﬁ cally, in Asia,

actual conditions in each market.

we will ﬁ rst sharpen our focus on building up our sales

In advanced nations as well, we will further enhance our

presence in China by bolstering our sales force. We will also

sales capabilities. Starting with Europe, the United States

and Japan, we will generate greater syner-

gies through collaboration with Océ, taking

full advantage of the company’s powerful

global sales channels and product portfolio,

including digital production printers and

industrial-use printing systems. Regardless

of the region or nation, we will work to

accelerate the provision of solutions based

on our ofﬁ ce equipment while expanding

retail photo-ﬁ nishing services.

Canon Ru LLC strengthening sales activities in Russia

CANON ANNUAL REPORT 2010

5. Building the foundations of an environmentally advanced corporation

Canon is working to reduce the lifecycle environmental burden of its products.

Canon is bolstering the development of energy- and re-

Canon will promote a localized production model, which

source-saving technologies to achieve unparalleled envi-

entails not only production and sales, but also the collection

ronmental performance throughout the entire product

and recycling of used

lifecycle. For example, the application of on-demand ﬁ xing

products in each region.

technology has reduced power consumption during the

This approach will

toner ﬁ xing process on ofﬁ ce network MFDs. Also, by pro-

contribute to reduced

moting the remanufacturing and refurbishment of MFDs

inventory and logis-

and the recycling of toner cartridges enabled through our

tics costs while also

proprietary technologies, we are working to reduce our

enabling us to reduce

environmental burden. Ultimately, we aim to become a

our environmental

Exterior part of inkjet printer power supply unit

global environmental leader.

burden even further.

made from recycled materials

Imparting a corporate culture, and cultivating human resources beﬁ tting a truly
excellent global company

Amid the dramatic changes of the times, Canon places high

value on its San-ji, or “Three Selfs,” spirit—self-motivation,

self-management and self-awareness—which provides the

foundation of the Company’s guiding principles, and will

boost its enterprising spirit. Further promoting a corporate

culture that encourages the entire Group to embrace the

courage to change, we will put in place systems that we will

be sure to pass on to the next generation. To this end, we

will hasten the development of human resources capable

Seminar held in Tokyo for managerial staff of Group companies in China

of shouldering truly global business responsibilities.

CANON ANNUAL REPORT 2010

CORPORATE FUNCTIONS

CANON ANNUAL REPORT 2010

CONTENTS

Research & Development

Production

Sales & Marketing

Corporate Social Responsibility

Photo:

In the Americas, Canon is leading the development of solutions-

based business products with its imageRUNNER ADVANCE series.

(Left: A FedEx Ofﬁ ce Print and Ship Center in the United States)

CANON ANNUAL REPORT 2010

R ESEARCH & DEVELOPM ENT

While strengthening R&D in fundamental technologies necessary for

enhancing product competitiveness, Canon is promoting a diversiﬁ cation

strategy and nurturing new businesses in medical and other ﬁ elds.

Canon is advancing materials R&D with the aim of eliminating hazardous substances from its products through the adoption of a voluntary standard stricter than laws and regulations.

R&D Expenses and Patents
Canon continues to bolster R&D activities to remain the leader
in the imaging ﬁ eld. R&D expenses totaled ¥315.8 billion, up
¥11.2 billion, or 3.7%, from 2009. The ratio to net sales was
8.5%. By segment, ¥96.2 billion, or 30.4% of the total expenses,
was allocated to the Ofﬁ ce Business Unit; ¥82.8 billion, or 26.2%,
to the Consumer Business Unit; ¥21.1 billion, or 6.7%, to the
Industry and Others Business Unit; and ¥115.8 billion, or 36.7%,
to basic R&D, which cannot be classiﬁ ed by segment. During
2010, Canon was granted 2,543* patents in the United States.

* Source: U.S. Patent and Trademark Ofﬁ ce. Calculated based upon publicly

disclosed weekly totals

Reinforcing Core Technologies
Canon continues to strengthen R&D for key components and
devices. In CMOS sensors—a key component of digital cam-
eras—Canon successfully developed a sensor that delivers
image resolution of approximately 120 megapixels. Canon also
developed a large CMOS sensor with ultra-high sensitivity. With
a chip size of 202 mm x 205 mm, this sensor provides greater
light-gathering capability, with potential applications including
the video recording of night skies and nocturnal animal behav-
ior as well as nighttime surveillance cameras. Canon will
advance its R&D efforts, undertaking projects even in pre-
competitive ﬁ elds.

CANON ANNUAL REPORT 2010

Nurturing New Businesses
Canon aims to establish operations in medical and industrial
equipment as its new business pillars. In the medical ﬁ eld,
Canon is cooperating with Kyoto University in developing
diagnostic imaging systems that enable the early detection of
diseases, including an optical ultrasound mammography
system that uses near-infrared rays instead of X-rays, eliminat-
ing X-ray exposure, and an adaptive optics scanning laser
ophthalmoscope (AO-SLO) for photoreceptor cell exams.
Canon is also stepping up R&D for intelligent robots that can
detect changes in surrounding conditions and make appropriate
judgments, just as humans do. Looking to the future in hazard
prediction and nursing care, Canon will strengthen related R&D
activities.
Moreover, Canon is promoting research on Mixed Reality
(MR) technology—an imaging technology that seamlessly
integrates the real and virtual worlds in real time—with poten-
tial applications including design simulation and prototype-less
development.

R&D Globalization
Canon is enhancing its global R&D approach. In the United States,
we are undertaking genetic diagnostic technology research. In
2010, we delivered a prototype system to the University of Utah.
Genetic diagnostic systems are expected to improve drug

Development of 120-megapixel CMOS sensor

administration based on genetic calculations. Meanwhile, Océ will
play an important role in our R&D globalization.

In line with its Three Regional Headquarters management

system, Canon aims to expand its R&D bases in Japan, the
United States and Europe to launch R&D projects in new
business areas. Through the strengthening of its R&D structure,
it will accelerate strategic R&D activities.

Canon is advancing research on

Mixed Reality (MR) technology—an

imaging technology that integrates

the real and virtual worlds.

CANON ANNUAL REPORT 2010

P RODU C TION

While promoting in-house production, automated processes and total

automation, Canon aims to establish an optimal global production

structure.

“Man-machine cell” production system has been introduced at Canon Hi-Tech (Thailand) Ltd.

Establishing an Optimal Global Production Structure
Canon is working to optimize its production structure and
allocation on a global scale by comprehensively assessing such
factors as costs, logistics, procurement, quality and workforce.
An optimized structure will lead to additional productivity
improvements for the entire Canon Group.

In 2010, Canon Virginia, Inc. began the automated production
of toner cartridges to serve customers in North America, which
is still a major market. With the start of such production, Canon
Virginia has created a toner cartridge business model that
completes the entire process, from production and sales to
collection and recycling, within the United States.

Improving Productivity
In addition to improving cell production efﬁ ciency, Canon has
introduced a “man-machine cell” production system that
integrates manual and automated processes. We are also
actively expanding automated production for products other
than toner cartridges.
Aiming to strengthen technological expertise and reduce
costs, Canon is promoting the in-house production of image
sensors and other key components and devices. Canon plans
to expand in-house production of materials and facilities,
reducing costs and enhancing product competitiveness.

CANON ANNUAL REPORT 2010

Meanwhile, Canon is implementing various IT reforms to
eliminate redundancies in development, production and sales
processes. As part of these reforms, Canon has established a
centralized production management system, the introduction
of which was completed as planned at 26 production bases in
2010. This system allows our production bases to share pur-
chase-order information provided by sales companies in real
time. Thus, materials and parts can be procured and products
assembled to match the exact volume ordered, contributing to
additional inventory reductions.

Bolstering Production Capacity
To prepare for an expected increase of global demand for its
products, Canon is working to strengthen its production struc-
ture worldwide by giving due consideration to optimal loca-
tions and capacity.

In 2010, Canon started the production of digital cameras at

Nagasaki Canon Inc. In 2011, Canon Zhongshan Business
Machines Co., Ltd., located in Guangdong, China plans to start
operations of its new laser printer plant, and Canon High-Tech
(Thailand), of its new inkjet printer plant.
As the laser printer market heads toward full-ﬂ edged recov-
ery, Canon anticipates that demand for toner cartridges will

Automated toner cartridge production

grow again. In response, Canon will construct a new plant at
Hita Canon Materials Inc. in Oita Prefecture, Japan for the
manufacture of toner cartridge parts and toners. The plant
construction will start during 2011, and the plant is scheduled
to begin operations in 2012.

Digital camera production at

Nagasaki Canon Inc.

CANON ANNUAL REPORT 2010

S ALES & MARKETING

Canon continues to bolster its sales and marketing functions in

all operations to better serve its customers through sophisticated

products, advanced solutions and timely services.

Canon Information Technology Services, Inc. efﬁ ciently responds to inquiries from end users throughout the United States.

General Review
ICT applications are spreading, and demand for advanced solu-
tions and services is growing. Canon aims to expand sales by
offering new solutions and services in all of its businesses.
The consolidation of Océ N.V. has enabled Canon to provide
a wider range of printing solutions worldwide. Meanwhile,
through its 2009 alliance with HP, Canon is more capable than
ever of helping ofﬁ ces throughout the world create optimal
document input/output environments speciﬁ c to individual
customer needs. Also, we are promoting Canon Managed
Document Services (Canon MDS), a common global service
designed to assist customers manage more effectively their
document input/output environments and document process-
es. Primarily targeting global corporations, we aim to expand
our customer base for Canon MDS. In addition, Canon has entered
the retail photo-ﬁ nishing market and begun photo-related

solutions offerings. In the medical ﬁ eld, it has launched inte-
grated services by linking diagnostic imaging systems with digi-
tal production printers.

The Americas
Canon’s sales totaled ¥1,023.3 billion (27.6% of consolidated
net sales). Markets in this region picked up gradually and
showed robust trends in the second half.
Canon renewed its IT systems to facilitate information
sharing even with local distributors. These systems have
enabled Canon to immediately gather inventory information
and deliver products to customers in a more timely manner.
Canon plans to establish a solutions business subsidiary in
2011. This subsidiary will develop and sell solutions combining
digital cameras, printers, medical equipment and ofﬁ ce net-
work MFDs.

CANON ANNUAL REPORT 2010

Europe
Sales in this segment, including Europe, the Middle East and Africa,
amounted to ¥1,172.5 billion (31.6% of consolidated net sales).
Canon renewed its entire lineups of laser printers, ofﬁ ce
network MFDs and digital production printers. By linking these
products with solutions, Canon effectively tapped into the
market recovery in 2010. Also, Canon teamed up with Accenture
and jointly launched Canon Consultancy Services. From 2011,
Canon will work to attract clients from wide-ranging ﬁ elds.
From 2009, Canon Europe headquarters assumed sales
responsibility for large accounts, including electronics retail
stores and Internet marketing operators, which had previously
been handled by sales companies in individual countries. In
2010, the number of these accounts increased from 13 to 20,
and total sales generated through these accounts grew to
command more than half of the consumer product business in
central and Western Europe.

Asia and Oceania
In Japan, sales totaled ¥695.7 billion (18.8% of consolidated net
sales). In Asia and Oceania, excluding Japan, sales grew signiﬁ -
cantly from 2009 to ¥815.4 billion (22.0% of consolidated net
sales), reﬂ ecting brisk sales expansion in the Asian market,
centered on China and India. Sales grew briskly in the Asian
market, centered on China.

In Japan, sales of ofﬁ ce network MFDs and laser printers were
strong. Also, through the establishment of an intermediate holding
company, Canon MJ IT Group Holdings Inc. (Canon MJ-ITHD), IT
solution business companies of the Canon Marketing Japan Group
have been included in the consolidation of Canon MJ-ITHD. Based

“Showroom on Wheels”— Canon Image Express Campaign in India

on this reorganization, and through a new data center under
construction, Canon aims to accelerate its cloud services.
Canon relocated its Chinese inkjet printer business head-
quarters functions from Beijing to Shanghai. Meanwhile, we
established new sales and service bases, such as eight new
Quick Service Stations in China and four new Canon Image
Squares in India to promote our consumer products. In 2010,
inkjet printer sales in Indonesia ranked fourth among all the
nations where Canon operates, following the United States,
Japan and China.

In Australia, despite severe operating conditions, Canon
worked to improve sales and marketing efﬁ ciencies and ex-
pand the markets for Canon products.

On-site photo print service in

Singapore

CANON ANNUAL REPORT 2010

C ORPORATE SOCIAL RESPON SIB I LITY

Canon strives to fulﬁ ll its social responsibility through environmental

measures and social and cultural activities to help bring the world closer

to achieving kyosei.

Through the Canon—Green Library for Kids initiative, Canon Singapore Pte. Ltd. has donated bookshelves and more than 40,000 children’s and other books to elementary schools

across Vietnam through its Vietnam representative ofﬁ ce.

Canon’s Basic Approach to CSR
Canon is promoting CSR activities beﬁ tting a truly excellent
global corporation that is admired and respected by people
worldwide. We aspire to a society in which all people—regard-
less of race, region or culture—live and work together for the
common good into the future.

Environmental Activities
Canon announced “Action for Green,” the Canon Environmen-
tal Vision, in 2009. In line with this vision, Canon is working to
realize technological innovation and improve its management
efﬁ ciency, thereby balancing the enhancement of product
performance and functions and the minimization of the lifecycle
environmental burden of its products. We are contributing to

the establishment of a society in which people enjoy afﬂ uent
lifestyles in a sound global environment.
Meanwhile, along with global warming, the preservation of
biodiversity has become an important issue shared by the
entire world. Through its business and CSR activities, Canon is
implementing various initiatives aimed at preserving wild fauna
and ﬂ ora.

20th Anniversary of the Toner Cartridges Recycling Program
2010 marked the 20th anniversary of the Canon Toner Car-
tridges Recycling Program. In 1990, Canon established a
cartridge return framework—an unthinkable initiative in the
electronic devices ﬁ eld at that time—and has achieved the
recycling of used cartridges collected without using them for

CANON ANNUAL REPORT 2010

landﬁ ll. The recycling program is now promoted in 24 nations
worldwide and enabled Canon to reduce CO2 emissions by an
aggregate total of approximately 400,000 tons in 2010.

Promotion of Biomass Plastic Parts
Plant-derived, biomass plastics, which curb increases in CO2,
offer material properties that effectively reduce environmental
burden. However, it had been difﬁ cult to achieve a sufﬁ cient
level of moldability and ﬂ ame retardance required for the
exterior parts of ofﬁ ce network MFDs and other products. In
2009, Canon and Toray Industries, Inc. successfully developed
biomass plastic that boasts world-leading ﬂ ame retardance
and that can be utilized for an exterior part of an ofﬁ ce net-
work MFD. We have started using this material in imageRUN-
NER ADVANCE models. Through additional joint R&D efforts, in
2010 we succeeded in developing a large exterior part using
the same material. Canon began using the biomass plastic part
on the imagePRESS C7010VP digital production printer in 2010.

Support for Wildlife Preservation in Yellowstone National Park
Canon U.S.A., Inc. has provided funding to world-famous
Yellowstone National Park in Wyoming and supported innova-
tive scientiﬁ c research aimed at protecting endangered spe-
cies. Among various initiatives made possible by Canon fund-
ing, Eyes on Yellowstone—an education and research
program—uses Canon imaging products to conduct wildlife
monitoring. In fact, distributed through the Internet, videos of
wildlife observations are used for the education of children
worldwide. Through these and other initiatives, Canon is
helping younger generations understand environmental issues
and the importance of nature conservation.

imagePRESS C7010VP using a biomass plastic exterior part

Disclosure Regarding Conﬂ ict Minerals
The term conﬂ ict minerals refers to minerals such as tantalum,
tin, gold and tungsten originating in the Democratic Republic of
the Congo and adjoining countries in Africa that are alleged to
be closely linked to conﬂ ict involving human rights violations in
the eastern Democratic Republic of the Congo.

In the United States, on July 21, 2010, the Dodd-Frank Wall
Street Reform and Consumer Protection Act, a statute target-
ing ﬁ nancial reform, was enacted, and a provision relating to
the disclosure of conﬂ ict minerals was included in the Act,
requiring publicly listed companies in the United States to
report and make public in the near future the use of so-called
“conﬂ ict minerals” in their products.

Toner cartridge

Eyes on Yellowstone, an education and research program funded by Canon U.S.A. Inc.

CANON ANNUAL REPORT 2010

Participants of the Canon PhotoMarathon Asia 2010, held in Singapore, took photos to submit to a photo contest.

Canon has begun investigations into whether or not the raw
materials the Company purchases for use in its products
include conﬂ ict minerals. Additionally, the Company will strive
to act in accordance with the Dodd-Frank Act and related
disclosure rules to be established by the U.S. Securities and
Exchange Commission.

Contributing to Society
Canon conducts wide-ranging social contribution activities. The
following are examples of these activities.

Canon Foundation Decides the First Research Grant Recipients
Canon established the Canon Foundation in 2008 to commem-
orate its 70th anniversary. This foundation supports organizations
and individuals engaged in research and education in various
academic ﬁ elds, beginning with science and technology, as
well as for cultural pursuits. In April 2010, the Canon
Foundation decided on the recipients for its ﬁ rst research
grants, which consisted of 13 grants in the Creation of
Industrial Infrastructure category and three in the Pursuit of
Ideals category.

Canon—For a Green Vietnam
Canon has undertaken an environmental protection project,
Canon—For a Green Vietnam, since 2009 with the aim of promot-
ing environmental awareness among the people in Vietnam. As
part of this project, in 2010, Canon conducted the Canon—Green
Library for Kids initiative to donate bookshelves and more than
40,000 children’s books and textbooks to pupils across the nation.
These books were collected through the Canon—Environmental
Bag Exchange program. Through such donations, Canon is contrib-
uting to the development of school libraries in Vietnam.

The Tsuzuri Project
In cooperation with an NPO, the Kyoto Culture Association,
Canon started a social contribution program called the Tsuzuri
Project (ofﬁ cial title: Cultural Heritage Inheritance Project) in
2007, aiming to preserve important Japanese cultural heritage
and promote the effective use of meticulously reproduced
original-based works. Through this project, Canon creates high-
precision reproductions of recognized Japanese cultural heri-
tage by employing its advanced digital image input, processing
and output technologies, together with gold-leaf and gold-paint

CANON ANNUAL REPORT 2010

Three Tsuzuri Project works were exhibited at the Expo 2010 Shanghai China.

treatments and other traditional techniques of skilled Japanese
craftsmen. At the Expo 2010 Shanghai China, Canon displayed
three works that were reproduced through the Tsuzuri Project
to disseminate traditional Japanese art throughout the world.

production base throughout the world. To nurture such human
resources, Canon started intensive training of local managerial
staff on a global scale in 2010 using highly qualiﬁ ed in-house
trainers. Through localized training programs, Canon is bolster-
ing its global production structure and workforce.

Volunteer Day at Canon Nederland N.V.
Based in the Netherlands, Canon Nederland established “Vol-
unteer Days” in 2004—days on which its employees conduct
various volunteer activities, such as serving as travel guides for
the elderly and visiting welfare facilities to provide support. In
2010, for the sixth consecutive year, activities included visiting
hospitalized children, taking and printing photos with them and
presenting these photos to the children.

Nurturing Diverse Human Resources
Aiming to become a truly excellent global corporation, Canon
effectively uses education to motivate each employee to
continue growing as an “excellent person.” For Canon to
achieve sustainable expansion of its global production structure
in harmony with the development of the global community, it
requires skilled and trained production personnel at each

Volunteer Day at Canon Nederland N.V.

CANON ANNUAL REPORT 2010

BUSINESS UNITS

CANON ANNUAL REPORT 2010

CONTENTS

Ofﬁ ce Business Unit

(cid:129) Ofﬁ ce network digital multifunction

devices (MFDs)

(cid:129) Color network digital MFDs
(cid:129) Ofﬁ ce copying machines
(cid:129) Personal-use copying machines
(cid:129) Full-color copying machines
(cid:129) Laser printers
(cid:129) Large format inkjet printers
(cid:129) Digital production printers

53.6%

Consumer Business Unit

(cid:129) Digital SLR cameras
(cid:129) Compact digital cameras
(cid:129) Interchangeable lenses
(cid:129) Digital video camcorders
(cid:129) Inkjet multifunction peripherals
(cid:129) Single function inkjet printers
(cid:129) Image scanners
(cid:129) Broadcasting equipment

37.5%

Industry and Others Business Unit

11.7%

(cid:129) Semiconductor lithography equipment
(cid:129) LCD lithography equipment
(cid:129) Medical image recording equipment
(cid:129) Ophthalmic products
(cid:129) Magnetic heads
(cid:129) Micromotors
(cid:129) Computers
(cid:129) Handy terminals
(cid:129) Document scanners
(cid:129) Calculators

Note:

The percentage ﬁ gures for the three business units presented

in the pie charts above do not add up to 100% because

“Eliminations,” used in consolidated accounting, were not

included in calculation considerations.

Photo:

Canon is offering new imaging options through the advanced

video capabilities of digital EOS, providing video professionals

with high-quality motion-picture shooting possibilities enabled by

digital SLR cameras.

CANON ANNUAL REPORT 2010

O FF IC E BUSINESS UNIT

Photo:

Thanks to its excellent ofﬁ ce network MFD performance and unparalleled user-friendliness, the imageRUNNER ADVANCE series

has been introduced in an elementary school in Chicago, the United States.

CANON ANNUAL REPORT 2010

“ Enhancing its
lineups with
imageRUNNER
ADVANCE, Canon
will accelerate the
solutions business.”

“ Canon will lead the
large-format inkjet
printer industry by
continuing to launch
market needs-
oriented products.”

Masaki Nakaoka

Toshio Homma

Chief Executive, Ofﬁ ce Imaging
Products Operations

Chief Executive, L Printer Products
Operations

In 2010, conditions in the ofﬁ ce imaging products market
showed stronger recovery, particularly in Asia. In ofﬁ ce network
MFDs, Canon strengthened its color and monochrome imag-
eRUNNER ADVANCE lineups and solution-oriented sales activi-
ties. Owing to our collaboration with HP and Océ N.V., MFD
sales volume grew in the Americas. In digital production print-
ers, the imageRUNNER ADVANCE C9000 PRO series performed
robustly in the Americas. The sales amount and volume of
MFPs for SOHO use grew in all markets, particularly in Europe
and Asia.
While promoting Canon MDS, we announced our plan to
collaborate with Fujitsu Limited in offering cloud computing-
based managed services for printing and other IT equipment.
In 2011, the Ofﬁ ce Business Unit aims to outpace market
growth. Thus we will continue to strengthen imageRUNNER
ADVANCE lineups and sales activities for our cloud business
while expanding our solutions business.

In digital production printers, we will reinforce our product

lineups and the synergy of working with Océ. We will also
increase the sales volume of SOHO-use products by bolstering
external collaboration in sales activities. Also, by enhancing our
solutions menu based on imageRUNNER ADVANCE and im-
proving our solutions provider presence, we aim to increase
our market share.

In 2010, the worldwide large-format inkjet printer market
rebounded after two years of contraction. Reﬂ ecting this
situation, global shipments grew slightly year on year.
The use of large-format inkjet printers is spreading in the
graphic arts ﬁ eld, including prepress color prooﬁ ng and digital
photo and on-demand poster production. In response, Canon
released new products incorporating a high-precision mechan-
ical structure that enables high-accuracy printing and featuring
the new LUCIA EX 12-color pigment ink system. These prod-
ucts earned high acclaim, and their sales grew steadily, driving
sales of Canon graphic arts printers. Reﬂ ecting the perfor-
mance of these powerful products, Canon was able to record
the largest shipments ever. We expanded sales in Europe and
the United States and also reinforced our mutual sales struc-
ture organized with Océ.
From 2011, conditions in advanced nations are expected to
improve. China and other emerging markets will likely maintain
their growth trends. To prepare ourselves for expected market
expansion, we will bolster R&D for core technologies and en-
hance our optimal global production structure. In this way, we
will further solidify our business, aggressively launching industry-
leading, attractive products, and to meet ever-diversifying
market needs, we will continue to reinforce our sales and R&D
collaboration with Océ.

Digital production printer,

imagePRESS C7010VP

Large-format inkjet printer,

imagePROGRAF iPF8300

CANON ANNUAL REPORT 2010

2010 Review—OFFICE BUSINESS UNIT

Sales Results
(Millions of yen)

3,000,000

2,000,000

1,000,000

2,246,609

1,987,269

1,645,076

Net sales in the Ofﬁ ce Busi-
ness Unit totaled ¥1,987.3
billion, increasing 20.8% year
on year, despite the slow
recovery in the production
printing market. Global
demand for ofﬁ ce network
MFDs—color devices in
particular—recovered com-
pared with 2009, while the
laser printer market also
achieved signiﬁ cant recovery.
In ofﬁ ce network MFDs,

the Ofﬁ ce Business Unit
realized double-digit growth

in sales in Japan, the Americas, Europe, and Asia and
Oceania. In China, sales of low-price models were robust.
The sales volume and amount of color models, a mainstay

imageRUNNER ADVANCE C5045

in this category, soared thanks to strong sales of the imag-
eRUNNER ADVANCE C5000 series. Also, the monochrome
imageRUNNER ADVANCE 6000 series with 50 to 70 ppm
capability and the color imageRUNNER ADVANCE C2000
series with 20 to 30 ppm capability performed well, pushing
up the overall shipment of ofﬁ ce network MFDs.

In laser printers, Canon’s performance showed a signiﬁ -

cant improvement in line with the market recovery. In
Japan, color A4-models, such as the imageCLASS MF8050
Cn (i-SENSYS MF8050 in some areas) and the imageCLASS
MF8350 Cdn (i-SENSYS MF8350 in some areas), underwent
expanded sales. Overseas, shipment surged in India, Viet-
nam and other Asian markets as well as in Europe and the
United States. In emerging markets, the sales volume of
monochrome SFPs and MFPs for individual use climbed
signiﬁ cantly. This success reﬂ ected the enhanced competi-
tiveness of these products owing to their faster printing
speed and other functional enhancements.

In digital production printers, Canon released the image-
PRESS C7010VP series for the commercial printing market
and the monochrome imageRUNNER ADVANCE 8000 series
during the reporting term. The Company worked to expand
sales of these new series. In addition, we reinforced our
product lineups and the synergies of working with Océ.
Meanwhile, Canon continued to enhance its solutions
business. We expanded the applications of the Canon
Multifunctional Embedded Application Platform (MEAP),
which enables cloud service access via MFDs. Furthermore,

Focus on Change—Accelerated Integration with Océ N.V.

After Océ ofﬁ cially joined the Canon Group in March 2010, the two
companies have promoted their integration and strengthened their
cooperation steadily. In particular, mainly in Europe and the United
States, Canon and Océ are striving to expand product portfolios and
are in the process of expanding product sales and strengthening the
servicing function by utilizing each other’s sales and service chan-
nels effectively. In Japan, Canon has expanded the lines of Océ
products it handles, and it is strategically meeting increased demand
for commercial digital printers for production printing. We will con-
tinue to complement each other in all business aspects, thereby
targeting the leading position in the global printing industry.

Digital production printer of Océ N.V.

CANON ANNUAL REPORT 2010

imageRUNNER ADVANCE C5051

imagePROGRAF iPF6350

cooperation with Group companies has allowed Canon to
acquire new solutions business accounts.
The Asian market for large-format inkjet printers contin-
ued to grow, contributing to a substantial increase in sales
volume. In 2010, Canon introduced three new series—
namely, the iPF6300, iPF6350 and iPF8300—for the graphic
arts market. Featuring the new LUCIA EX 12-color pigment
ink system, which realizes improvements in the color
density of black as well as in color gradation and range,
new models in these series provide superior productivity,
exquisite photographic output and the capability to repro-
duce ﬁ ne detail. These models have been received well in
the market since their launch, contributing to segment
sales. In the CAD market, Canon sustained robust sales of

the iPF750, which enables high-speed printing on an A1-
size sheet in approximately 28 seconds.
During 2010, to effectively meet increased shipment
needs, Canon established a new production base in China.

Color imageCLASS MF8350Cdn

(i-SENSYS MF8350Cdn in some areas)

Focus on Change—imageRUNNER ADVANCE High-Speed Monochrome Lineup Completed

Canon released three imageRUNNER ADVANCE 8000 PRO models in
2010 and completed its high-speed monochrome lineup. Thanks to
their improved fuser unit performance, these printers require only
one minute or less to warm up after powering on—the quickest of all
A3 monochrome MFDs of 85 ppm or more.* In addition, they achieve
industry-leading color scanning speed while supporting high-volume
printing, with a maximum paper capacity of 7,700 sheets. Also, their
footprint has been reduced by approximately 35% compared with
their predecessor, the imageRUNNER 7105i.** The network of color
and monochrome imageRUNNER ADVANCE models now enables a
higher level of work efﬁ ciency in ofﬁ ces.
* As of September 3, 2010. Based on a Canon study.
** The footprint of imageRUNNER 7105i: 2,021 mm (W) x 792 mm (D)

imageRUNNER ADVANCE 8105 V2

(imageRUNNER ADVANCE 8105 PRO in some areas)

CANON ANNUAL REPORT 2010

C ONS UMER BU SINESS UN IT

Photo:

The EOS 60D is an advanced-amateur digital SLR camera that offers superior features, such as the Vari-angle Clear View LCD

monitor, which provides enhanced monitor articulation, and excellent video capabilities, which have earned high acclaim from

video professionals. Canon is reinforcing its lineup of digital SLR cameras packed with sophisticated functions.

CANON ANNUAL REPORT 2010

“ Further reinforcing
its brand power,
Canon will bolster
its overwhelming
No. 1 position.”

“ Canon will aggres-
sively launch
appealing inkjet
products to achieve
additional growth.”

Masaya Maeda

Katsuichi Shimizu

Chief Executive, Image
Communication Products
Operations

Chief Executive, Inkjet Products
Operations

The digital camera market grew steadily, and digital compact
camera markets continued to thrive in emerging markets,
while digital SLR camera markets remained strong worldwide,
particularly in Asia.

In digital compact cameras, Canon released many models
featuring the HS SYSTEM. Incorporating a high-sensitivity image
sensor with Canon’s proprietary DIGIC image processor, the HS
SYSTEM enhances image quality in low-light conditions. The
uniqueness and superiority of these cameras helped Canon
secure its leading market position.

In digital SLR cameras, Canon enhanced the mid-range and

high-end products. Sales volume expanded in each market,
increasing Canon’s share. The sales volume of Canon’s digital
video camcorders also increased.

In 2011, Canon will strengthen its optical technologies to
create high-value-added products, thereby supporting higher
image quality for still pictures and videos. It will also bolster its
services to accommodate post-shooting needs, thereby pio-
neering new possibilities for digital cameras. Meanwhile, Canon
will solidify its sales capabilities in emerging markets. By offer-
ing new products based on cutting-edge technologies, Canon
is targeting its continuous growth.

The inkjet printer market expanded worldwide, particularly in
Asia. However, overall conditions have not returned to a level
on par with the 2007 peak.
Canon continues to expand inkjet sales even in a stagnant
marketplace that has shrunk since the onset of the global
recession in 2008. It managed to increase inkjet shipments in
2010 and will work to maintain this upward trend.
Reviewing its 2010 strategies, Canon renewed PIXMA inkjet
printer designs. While working to increase the series’ total sales
volume by tapping into growing Asian markets, it strove to
expand sales of high-value-added products with which cus-
tomers are expected to perform high-volume printing. To that
end, it aimed to expand sales of multifunction printers (MFPs)
for home ofﬁ ce use and mid-range and high-end products in
the United States and other advanced nations. Consequently,
sales of these products rose as planned.

In scanners, Canon increased sales volume amid market

contraction, solidifying its leading position.
From 2011, Canon will enhance its FINE technology, which
enables the high-speed printing of high-quality images thanks
to its proprietary high-precision print head technology. By
launching new, user-friendly products that feature excellent
design and boosted user value, Canon aims for additional sales
volume. To meet expected sales growth, Canon plans to build a
new plant in Thailand.

Digital SLR camera,

EOS Rebel T3i (EOS 600D in some areas)

Inkjet printer,

PIXMA MX880 series

CANON ANNUAL REPORT 2010

2010 Review—CONSUMER BUSINESS UNIT

Sales Results
(Millions of yen)

1,500,000

1,456,075

1,391,327

1,301,160

1,000,000

Net sales in the Consumer
Business Unit grew 6.9% year
on year to ¥1,391.3 billion.
Sales steadily expanded for
digital SLR cameras, digital
compact cameras, inkjet
printers and other consumer
products.

500,000

In digital SLR cameras,
Canon released the EOS
Rebel T2i (EOS 550D in some
areas)—an entry-level model
with advanced full-HD video
capabilities—and an ad-
vanced-amateur model, EOS
60D, the ﬁ rst EOS equipped with the Vari-angle LCD monitor.
EOS cameras received high acclaim in the market, allowing
Canon to increase its market share of digital SLR cameras.
In digital compact cameras, Canon launched as many as 14
new models in 2010, including the PowerShot SD1300 IS

PowerShot SD1300 IS DIGITAL ELPH

(Digital IXUS 105 in some areas)

DIGITAL ELPH (Digital IXUS 105 in some areas) featuring the
HS SYSTEM. Other PowerShot models—speciﬁ cally, the
SD3500 IS DIGITAL ELPH (Digital IXUS 210 in some areas)
with a 3.5-inch, wide touch panel—added to segment sales.
The sales volume continued to increase, particularly in
emerging markets.

In LCD projectors, the high-performance, high-resolution
REALiS SX80 Mark II (XEED SX80 Mark II in some areas) with
speciﬁ cations optimized for medical imaging and high-
deﬁ nition photography contributed to segment sales.
Canon introduced the HJ15ex8.5B KRSE-V portable HD
zoom lens with a built-in Optical Image Stabilizer in the

EOS Rebel T2i (EOS 550D in some areas)

EF70-200mm F2.8L IS II USM

Focus on Change—Full HD Video Capabilities on EOS Cameras

Released in November 2008, the EOS 5D Mark II digital SLR camera
continues to gain recognition among video professionals. Equipped
with a full-frame CMOS sensor, this is the ﬁ rst EOS to offer full HD
video capture, at 1,920 x 1,080 resolution. It has been widely used for
TV program shooting as well as for the shooting of some Hollywood
movies. In fact, its CMOS sensor is double the size of those in com-
monly used broadcast cameras. It maximizes depth of ﬁ eld, or the
aesthetic quality of blur—a shooting technique often used with SLR
cameras—while providing compactness, portability and an extensive
range of EF lenses. Featured on other EOS models, Canon’s full HD video
capability is opening up new possibilities for digital SLR cameras.

Video shooting using digital EOS in the United States

CANON ANNUAL REPORT 2010

VIXIA HF M41 (LEGRIA HF M41 in some areas)

Inkjet printer, PIXMA MG6100 series

broadcasting lens. The HD image stability of this new prod-
uct earned high acclaim among video professionals.

In inkjet printers, supported by overall market recovery

and by sales growth, particularly in Asia, sales volume
expanded compared with 2009. In the United States, the
PIXMA MX870 for home ofﬁ ce use and the PIXMA Pro9500

Mark II for professional and advanced amateur users were
received well, pushing up segment sales. In China, while
sustaining the high sales volume of the already-popular
PIXMA iP1180, Canon achieved a brisk increase in sales of
entry-model MFPs and MFPs for home ofﬁ ce use from 2009.

REALiS SX80 Mark II (XEED SX80 Mark II in some areas)

PIXMA MG8100 series

Focus on Change—Renewal of PIXMA Inkjet Printer Series

Canon renewed the PIXMA lineups, upgrading the design and usabil-
ity. New PIXMA models were released in 2010, including the PIXMA
MG6100 series. Featuring a stylish black exterior, these PIXMA print-
ers provide sophisticated design. Also, the Intelligent Touch Sys-
tem*—a light-guided, touch-sensitive button navigation system—
enhances intuitive, effortless operations. Furthermore, the Full HD
Movie Print function turns HD movie clips captured with compatible
Canon digital cameras into beautiful photo prints. With these power-
ful machines, Canon continues to lead the inkjet printer market.
* Only available on the PIXMA MG8100 series and the PIXMA MG6100 series.

Intelligent Touch System

CANON ANNUAL REPORT 2010

I NDU STRY AND OTHERS BU SIN ES S UN I T

Photo:

Canon’s LCD lithography equipment for eighth-generation mirror projection aligners provides not only excellent productivity, but

also speedy installation, contributing to customers’ strategic LCD panel production.

CANON ANNUAL REPORT 2010

“ Our market needs-oriented business model is gaining a strong
foothold in the market and producing tangible results. In 2011,
Canon will accelerate the development of technologies and
products that enable it to capture demand in new businesses.”

Shigeyuki Uzawa

Chief Executive, Optical Products Operations (Effective January 1, 2011)

In 2010, the markets of both semiconductor lithography and
LCD lithography equipment enjoyed rapid recovery, each
expanding briskly year on year in terms of shipment volume.
Behind such market expansion was manufacturers’ strong
drive for capital investment.
Our semiconductor lithography equipment business in-
creased sales volume signiﬁ cantly. Canon expects that market
recovery will continue in 2011 in anticipation of semiconductor
manufacturers’ spending on their facilities being either at the
same level or higher compared with 2010. To capitalize on such
positive conditions, Canon will facilitate closer collaboration
among design and sales divisions and accurately grasp ever-
diversifying customer needs while accelerating the develop-
ment of products with unparalleled reliability and durability and
upgrading its service quality. Through these activities, we will
work to meet these needs ﬂ exibly.
The LCD lithography equipment business also expanded
sales substantially. Performance in South Korea, Taiwan and
China was particularly robust. In fact, our shipment volume

increased substantially year on year. In 2011, the LCD lithogra-
phy equipment market in China is expected to grow further as
an increasing number of LCD panel manufacturers are acceler-
ating local production. In response, Canon will strengthen sales
activities and systems to provide support and other services.
The Company plans to launch LCD lithography equipment to
capture opportunities arising in line with LCD panel manufac-
turers’ investment in facilities for 7.5- and eighth-generation
mirror projection aligners. Meanwhile, we will work to improve
the reliability and durability of our products and enhance our
capabilities for quick equipment installation.
The development of optical products requires the latest in
advanced technologies. This means that the outcome of R&D for
optical products can be channeled into the development of other
Canon products. In other words, R&D in this segment is the driver
of technological advances achieved by the Canon Group. Bearing
this signiﬁ cant responsibility, the Industry and Others Business Unit
will continue to bolster the development of next-generation
lithography, medical and other technologies.

Semiconductor lithography systems

Development of digital radiography system

CANON ANNUAL REPORT 2010

2010 Review—INDUSTRY AND OTHERS BUSINESS UNIT

Sales Results
(Millions of yen)

600,000

500,000

400,000

300,000

200,000

100,000

522,405

432,958

357,998

Net sales increased
20.9% year on year to
¥433.0 billion. In line with
the recovery in capital
investment by semicon-
ductor and LCD panel
manufacturers, Canon
expanded sales volume.
In semiconductor
lithography equipment,
sales were strong for
products targeting manu-
facturers of memory,
sensor and imaging
devices. In particular,

products based on Canon’s FPA-5500 platform, which
boasts excellent stability and reliability, were received
well in the markets of Japan, Taiwan and South Korea.
In LCD lithography equipment, our ability to install
systems quickly helped customers promote their busi-
ness strategies. Sales of the MPAsp-H700 series for
eighth-generation mirror projection aligners were
particularly robust.

In digital radiography systems, the market for static
X-ray imaging systems expanded, especially in China.
Meanwhile, released in 2009, the CXDI-55C/55G ﬂ at
panel detector saw increased sales in Japan, Europe
and the United States.

In ophthalmic
equipment, sales of
the CX-1 mydriatic/
non-mydriatic two-
in-one digital retinal
camera contributed
to overall segment
performance. Also,
sales of Optical
Coherence Tomog-
raphy (OCT) sys-
tems of Canon subsidiary OPTOPOL Technology S.A.
grew, especially in Europe, pushing up segment sales.
In other categories, the industrial systems of Group

OPTOPOL’s ophthalmic equipment

companies performed robustly, including Canon
Machinery Inc.’s BESTEM series of die bonders and
Canon ANELVA Corporation’s semiconductor ﬁ lm
deposition equipment.

BESTEM-D10Sp

Focus on Change—CXDI-70C Wireless Digital Radiography System

Since its release of the world’s ﬁ rst digital X-ray system, CXDI-11, in
1998, Canon has contributed to digital evolution in diagnostic imag-
ing. As X-ray imaging equipment continues to go digital, Canon
launched its ﬁ rst wireless digital radiography system, CXDI-70C
Wireless, in October 2010.
Capable of wireless image transmission, the lightweight CXDI-70C
Wireless provides great portability and ﬂ exible usage. Its outer di-
mension is the same as that of conventional ﬁ lm cassettes, allowing
for an easy conversion of analog systems into digital. A new Canon-
developed glass substrate with a pixel pitch of 125 microns achieves
high-precision, high-resolution imaging. Also, the CXDI-70 Wireless is
equipped with a highly sensitive cesium iodide (CsI) scintillator, which
delivers high-quality images and reduces X-ray exposure to patients.

CXDI-70C Wireless

CANON ANNUAL REPORT 2010

FINANCIAL SECTION

TABLE OF CONTENTS

FINANCIAL OVERVIEW ...................................................................................... 46

TEN-YEAR FINANCIAL SUMMARY .................................................................... 62

CONSOLIDATED BALANCE SHEETS .................................................................. 64

CONSOLIDATED STATEMENTS OF INCOME ...................................................... 65

CONSOLIDATED STATEMENTS OF EQUITY ........................................................ 66

CONSOLIDATED STATEMENTS OF CASH FLOWS .............................................. 68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...................................... 69

1 Basis of Presentation and Signiﬁ cant Accounting Policies

2 Basis of Financial Statement Translation .......................................... 73

Investments

4 Trade Receivables ............................................................................. 75

Inventories

6 Property, Plant and Equipment

7 Finance Receivables and Operating Leases ...................................... 76

8 Acquisitions ........................................................................................ 77

9 Goodwill and Other Intangible Assets .............................................. 78

10 Short-Term Loans and Long-Term Debt ............................................ 80

11 Trade Payables

12 Employee Retirement and Severance Beneﬁ ts ................................ 81

Income Taxes .................................................................................... 87

14 Common Stock .................................................................................. 90

15 Legal Reserve and Retained Earnings ............................................... 91

16 Other Comprehensive Income (Loss)

17 Stock-Based Compensation ................................................................ 93

18 Net Income Attributable to Canon Inc. Stockholders per Share ...... 95

19 Derivatives and Hedging Activities

20 Commitments and Contingent Liabilities ......................................... 97

Disclosures about the Fair Value of Financial Instruments and
Concentrations of Credit Risk ........................................................... 99

22 Fair Value Measurements ............................................................... 100

23 Supplemental Cash Flow Information ............................................ 102

24 Segment Information

25 Subsequent Event ........................................................................... 106

MANAGEMENT’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING ........................................................................ 107

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ......... 108

CANON ANNUAL REPORT 2010

FINANCIAL OVERVIEW

GENERAL
The following discussion and analysis provides information that
management believes to be relevant to understanding Canon’s
consolidated ﬁ nancial condition and results of operations.
References in this discussion to the “Company” are to Canon
Inc. and, unless otherwise indicated, references to the ﬁ nancial
condition or operating results of “Canon” refer to Canon Inc.
and its consolidated subsidiaries.

OVERVIEW
Canon is one of the world’s leading manufacturers of plain
paper copying machines, digital multifunction devices (“MFDs”),
laser printers, cameras, inkjet printers, semiconductor lithogra-
phy equipment and liquid crystal display (“LCD”) lithography
equipment. Canon earns revenues primarily from the manufac-
ture and sale of these products domestically and international-
ly. Canon’s basic management policy is to contribute to the
prosperity and well-being of the world while endeavoring to
become a truly excellent global corporate group targeting con-
tinued growth and development.
Canon divides its businesses into three segments: the Ofﬁ ce
Business Unit, the Consumer Business Unit, and the Industry
and Others Business Unit.

Economic environment
Looking back at the global economy in 2010, economic condi-
tions continued to improve broadly throughout the world, led
by the economic growth of such emerging markets as China
and India. In the United States, despite the unemployment rate
remaining at a relatively high level and other concerns, eco-
nomic conditions continued to recover gradually thanks in part
to economic measures by the government. As for Europe, in
spite of lingering ﬁ nancial and employment concerns along
with the emergence of ﬁ nancial crises in some countries, the
region overall managed to realize a recovery. China, which
quickly recovered its growth pace through major economic
stimulus measures, and the rest of Asia, along with other
emerging nations, continued to achieve economic expansion.
And in Japan, although signs began to appear indicating a turn-
around, the recovery came to a standstill at the end of 2010
due to prolonged deﬂ ation and other factors.

Market environment
As for the markets in which Canon operates amid these condi-
tions, within the ofﬁ ce equipment market, demand for network
digital MFDs recovered, mainly for color models, while laser
printers also realized a steady rebound compared with the pre-
vious year. As for the consumer products market, demand for
digital single-lens reﬂ ex (“SLR”) cameras maintained healthy
growth across global markets. As for compact digital cameras,
although sales were sluggish in developed countries, demand
in emerging markets grew favorably resulting in a slight
increase overall. With regard to inkjet printers, demand contin-
ued on a track to recovery. In the industry and others market,
demand for semiconductor lithography equipment and LCD
lithography equipment grew steadily, owing to improved invest-
ment by semiconductor device and LCD panel manufacturers.
The average value of the yen during the year was ¥87.40 to the
U.S. dollar, a year-on-year appreciation of approximately ¥6 or

6%, and ¥114.97 to the euro, a year-on-year appreciation of
approximately ¥15 or 12%.

Summary of operations
Amid the impact of the sharp appreciation of the yen, net sales
for the year totaled ¥3,706.9 billion (U.S.$45,764 million), an
increase of 15.5% from the previous year, owing to a substan-
tial recovery in sales of laser printers among ofﬁ ce products,
continued robust sales of such consumer products as digital
SLR cameras, the increase in sales within the Industry and
Others Business Unit, and the effects of consolidation arising
from corporate acquisitions, such as Océ N.V. Income before
income taxes totaled ¥392.9 billion (U.S.$4,850 million), a year-
on-year increase of 79.1%, while net income attributable to
Canon Inc. also increased by 87.3% to ¥246.6 billion
(U.S.$3,044 million).

Key performance indicators
The following are the key performance indicators (“KPIs”) that
Canon uses in managing its business. The changes from year to
year in these KPIs are set forth in the table shown on page 47.

Revenues
As Canon pursues the goal to become a truly excellent global com-
pany, one indicator upon which Canon’s management places
strong emphasis is revenue. The following are some of the KPIs
related to revenue that management considers to be important.
Net sales is one such KPI. Canon derives net sales primarily
from the sale of products and, to a much lesser extent, provi-
sion of services associated with its products. Sales vary
depending on such factors as product demand, the number
and size of transactions within the reporting period, market
acceptance for new products, and changes in sales prices.
Other factors involved are market share and market environ-
ment. In addition, management considers the evaluation of net
sales by segment to be important for the purpose of assessing
Canon’s sales performance in various segments, taking into
account recent market trends.
Gross proﬁ t ratio (ratio of gross proﬁ t to net sales) is another
KPI for Canon. Through its reforms of product development,
Canon has been striving to shorten product development lead
times in order to launch new, competitively priced products at
a faster pace. Furthermore, Canon has further achieved cost
reductions through enhancement of efﬁ ciency in its production.
Canon believes that these achievements have contributed to
improving Canon’s gross proﬁ t ratio, and will continue pursuing
the curtailment of product development lead times and reduc-
tions in production costs.
Operating proﬁ t ratio (ratio of operating proﬁ t to net sales)
and research and development (“R&D”) expense to net sales
ratio are considered to be KPIs by Canon. Canon is focusing on
two areas for improvement. Canon is striving to control and
reduce its selling, general and administrative expenses as its
ﬁ rst key point. Secondly, Canon’s R&D policy is designed to
maintain a certain level of spending in core technology to sus-
tain Canon’s leading position in its current business areas and
to seek possibilities in other markets. Canon believes such
investments will create the basis for future success in its busi-
ness and operations.

CANON ANNUAL REPORT 2010

Cash ﬂ ow management
Canon also places signiﬁ cant emphasis on cash ﬂ ow manage-
ment. The following are the KPIs with regard to cash ﬂ ow man-
agement that Canon’s management believes to be important.
Inventory turnover measured in days is a KPI because it mea-
sures the adequacy of supply chain management. Inventories
have inherent risks of becoming obsolete, physically damaged
or otherwise decreasing signiﬁ cantly in value, which may
adversely affect Canon’s operating results. To mitigate these
risks, management believes that it is crucial to continue reduc-
ing inventories and decrease production lead times in order to
promptly recover related product expenses by strengthening
supply chain management.
Canon’s management seeks to meet its liquidity and capital
requirements primarily with cash ﬂ ow from operations.
Management also seeks debt-free operations. For a manufac-
turing company like Canon, it generally takes considerable time
to realize proﬁ t from a business as the process of R&D, manu-
facturing and sales has to be followed for success. Therefore,

KEY PERFORMANCE INDICATORS

management believes that it is important to have sufﬁ cient
ﬁ nancial strength so that the Company does not have to rely on
external funds. Canon has continued to reduce its dependency
on external funds for capital investments in favor of generating
the necessary funds from its own operations.
Canon Inc. stockholders’ equity to total assets ratio is anoth-
er KPI for Canon. Canon believes that its stockholders’ equity to
total assets ratio measures its long-term sustainability. Canon
also believes that achieving a high or rising stockholders’ equity
ratio indicates that Canon has maintained a strong ﬁ nancial
position or further improved its ability to fund debt obligations
and other unexpected expenses. In the long-term, Canon will
be able to maintain a high level of stable investments for its
future operations and development. As Canon puts strong
emphasis on its R&D activities, management believes that it is
important to maintain a stable ﬁ nancial base and, accordingly,
a high level of its stockholders’ equity to total assets ratio.

2010

2009

2008

2007

2006

Net sales (Millions of yen)
Gross proﬁ t to net sales ratio
R&D expense to net sales ratio
Operating proﬁ t to net sales ratio
Inventory turnover measured in days
Debt to total assets ratio
Canon Inc. stockholders’ equity to total assets ratio

¥3,706,901
48.1%
8.5%
10.5%
35 days
0.3%
66.4%

¥3,209,201
44.5%
9.5%
6.8%
39 days
0.3%
69.9%

¥4,094,161
47.3%
9.1%
12.1%
47 days
0.4%
67.0%

¥4,481,346
50.1%
8.2%
16.9%
44 days
0.6%
64.8%

¥4,156,759
49.6%
7.4%
17.0%
45 days
0.7%
66.0%

Note: Inventory turnover measured in days; Inventory divided by net sales for the previous six months, multiplied by 182.5.

CRITICAL ACCOUNTING POLICIES AND
ESTIMATES
The consolidated ﬁ nancial statements are prepared in accor-
dance with U.S. generally accepted accounting principles
(“GAAP”) and based on the selection and application of signiﬁ -
cant accounting policies which require management to make
signiﬁ cant estimates and assumptions. Canon believes that the
following are the more critical judgment areas in the applica-
tion of its accounting policies that currently affect its ﬁ nancial
condition and results of operations.

Revenue recognition
Canon generates revenue principally through the sale of con-
sumer products, equipment, supplies, and related services
under separate contractual arrangements. Canon recognizes
revenue when persuasive evidence of an arrangement exists,
delivery has occurred and title and risk of loss have been trans-
ferred to the customer or services have been rendered, the
sales price is ﬁ xed or determinable, and collectibility is probable.
Revenue from sales of ofﬁ ce products, such as ofﬁ ce net-
work digital multifunction devices and laser printers, and con-
sumer products, such as digital cameras and inkjet
multifunction peripherals, is recognized upon shipment or
delivery, depending upon when title and risk of loss transfer to
the customer.

Revenue from sales of optical equipment, such as semicon-
ductor lithography equipment and LCD lithography equipment
that are sold with customer acceptance provisions related to
their functionality, is recognized when the equipment is
installed at the customer site and the speciﬁ c criteria of the
equipment functionality are successfully tested and demon-
strated by Canon. Service revenue is derived primarily from
separately priced product maintenance contracts on equip-
ment sold to customers and is measured at the stated amount
of the contract and recognized as services are provided.
Canon also offers separately priced product maintenance
contracts for most ofﬁ ce imaging products, for which the cus-
tomer typically pays a stated base service fee plus a variable
amount based on usage. Revenue from these service mainte-
nance contracts is measured at the stated amount of the con-
tract and recognized as services are provided and variable
amounts are earned.
Revenue from the sale of equipment under sales-type leases
is recognized at the inception of the lease. Income on sales-
type leases and direct-ﬁ nancing leases is recognized over the
life of each respective lease using the interest method. Leases
not qualifying as sales-type leases or direct-ﬁ nancing leases are
accounted for as operating leases and the related revenue is
recognized ratably over the lease term. When equipment leas-
es are bundled with product maintenance contracts, revenue is

CANON ANNUAL REPORT 2010

ﬁ rst allocated considering the relative fair value of the lease
and non-lease deliverables based upon the estimated relative
fair values of each element. Lease deliverables generally
include equipment, ﬁ nancing and executory costs, while non-
lease deliverables generally consist of product maintenance
contracts and supplies.
For all other arrangements with multiple elements, Canon
allocates revenue to each element based on its relative fair
value if such element meets the criteria for treatment as a sep-
arate unit of accounting. Otherwise, revenue is deferred until
the undelivered elements are fulﬁ lled and accounted for as a
single unit of accounting.
Canon records estimated reductions to sales at the time of
sale for sales incentive programs including product discounts,
customer promotions and volume-based rebates. Estimated
reductions in sales are based upon historical trends and other
known factors at the time of sale. In addition, Canon provides
price protection to certain resellers of its products, and records
reductions to sales for the estimated impact of price protection
obligations when announced.
Estimated product warranty costs are recorded at the time
revenue is recognized and are included in selling, general and
administrative expenses. Estimates for accrued product war-
ranty costs are based on historical experience, and are affected
by ongoing product failure rates, speciﬁ c product class failures
outside of the baseline experience, material usage and service
delivery costs incurred in correcting a product failure.

Allowance for doubtful receivables
Allowance for doubtful receivables is determined using a com-
bination of factors to ensure that Canon’s trade and ﬁ nancing
receivables are not overstated due to uncollectibility. These fac-
tors include the length of time receivables are past due, the
credit quality of customers, macroeconomic conditions and
historical experience. Also, Canon records speciﬁ c reserves for
individual accounts when Canon becomes aware of a custom-
er’s inability to meet its ﬁ nancial obligations to Canon, such as
in the case of bankruptcy ﬁ lings or deterioration in the custom-
er’s operating results or ﬁ nancial position. If circumstances
related to customers change, estimates of the recoverability of
receivables would be further adjusted.

Valuation of inventories
Inventories are stated at the lower of cost or market value. Cost
is determined by the average method for domestic inventories
and principally the ﬁ rst-in, ﬁ rst-out method for overseas inven-
tories. Market value is the estimated selling price in the ordi-
nary course of business less the estimated costs of completion
and the estimated costs necessary to make a sale. Canon rou-
tinely reviews its inventories for their salability and for indica-
tions of obsolescence to determine if inventories should be
written-down to market value. Judgments and estimates must
be made and used in connection with establishing such allow-
ances in any accounting period. In estimating the market value
of its inventories, Canon considers the age of the inventories
and the likelihood of spoilage or changes in market demand for
its inventories.

Impairment of long-lived assets
Long-lived assets, such as property, plant and equipment, and
acquired intangibles subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indi-
cate that the carrying amount of an asset may not be recover-
able. If the carrying amount of the asset exceeds its estimated
undiscounted future cash ﬂ ows, an impairment charge is rec-
ognized in the amount by which the carrying amount of the
asset exceeds the fair value of the asset. Determining the fair
value of the asset involves the use of estimates and assump-
tions. These estimates and assumptions include future market
conditions, net sales growth rate, gross margin and discount
rate. Though Canon believes that the estimates and assump-
tions are reasonable, actual future results may differ from these
estimates and assumptions.

Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation
is calculated principally by the declining-balance method,
except for certain assets which are depreciated by the straight-
line method over the estimated useful lives of the assets.

Goodwill and other intangible assets
Goodwill and other intangible assets with indeﬁ nite useful lives
are not amortized, but are instead tested for impairment annu-
ally in the fourth quarter of each year, or more frequently if indi-
cators of potential impairment exist. Canon performs its
impairment test of goodwill using the two-step approach at the
reporting unit level, which is one level below the operating seg-
ment level. All goodwill is assigned to the reporting unit or units
that beneﬁ t from the synergies arising from each business
combination. If the carrying amount assigned to the reporting
unit exceeds the fair value of the reporting unit, Canon per-
forms the second step to measure an impairment charge in the
amount by which the carrying amount of a reporting unit’s
goodwill exceeds its implied fair value. Intangible assets with
ﬁ nite useful lives consist primarily of software, license fees, pat-
ented technologies and customer relationships. Software and
license fees are amortized using the straight-line method over
the estimated useful lives, which range from 3 years to 5 years
for software and 5 years to 10 years for license fees. Patented
technologies are amortized using the straight-line method prin-
cipally over the estimated useful life of 3 years. Customer rela-
tionships are amortized principally using the declining- balance
method over the estimated useful life of 5 years.

Income taxes
Canon considers many factors when evaluating and estimating
income tax uncertainties. These factors include an evaluation of
the technical merits of the tax positions as well as the amounts
and probabilities of the outcomes that could be realized upon
settlement. The actual resolutions of those uncertainties will
inevitably differ from those estimates, and such differences
may be material to the ﬁ nancial statements.

CANON ANNUAL REPORT 2010

Valuation of deferred tax assets
Canon currently has signiﬁ cant deferred tax assets, which are
subject to periodic recoverability assessments. Realization of
Canon’s deferred tax assets is principally dependent upon its
achievement of projected future taxable income. Canon’s judg-
ments regarding future proﬁ tability may change due to future
market conditions, its ability to continue to successfully exe-
cute its operating restructuring activities and other factors. Any
changes in these factors may require possible recognition of
signiﬁ cant valuation allowances to reduce the net carrying
value of these deferred tax asset balances. When Canon deter-
mines that certain deferred tax assets may not be recoverable,
the amounts, which may not be realized, are charged to
income tax expense and will adversely affect net income.

Employee retirement and severance beneﬁ t plans
Canon has signiﬁ cant employee retirement and severance ben-
eﬁ t obligations that are recognized based on actuarial valua-
tions. Inherent in these valuations are key assumptions,
including discount rates and expected return on plan assets.
Management must consider current market conditions, includ-
ing changes in interest rates, in selecting these assumptions.
Other assumptions include assumed rate of increase in com-
pensation levels, mortality rate, and withdrawal rate. Changes
in these assumptions inherent in the valuation are reasonably
likely to occur from period to period. Actual results that differ
from the assumptions are accumulated and amortized over
future periods and, therefore, generally affect future pension
expenses. While management believes that the assumptions
used are appropriate, the differences may affect employee
retirement and severance beneﬁ t costs in the future.

In preparing its ﬁ nancial statements for ﬁ scal 2010, Canon

estimated a weighted-average discount rate of 2.3% for
Japanese plans and 4.9% for foreign plans and a weighted-
average expected long-term rate of return on plan assets of
3.6% for Japanese plans and 6.1% for foreign plans. In estimat-
ing the discount rate, Canon uses available information about

CONSOLIDATED RESULTS OF OPERATIONS

SUMMARY OF OPERATIONS

rates of return on high-quality ﬁ xed-income governmental and
corporate bonds currently available and expected to be avail-
able during the period to the maturity of the pension beneﬁ ts.
Canon establishes the expected long-term rate of return on
plan assets based on management’s expectations of the long-
term return of the various plan asset categories in which it
invests. Management develops expectations with respect to
each plan asset category based on actual historical returns and
its current expectations for future returns.
Decreases in discount rates lead to increases in actuarial
pension beneﬁ t obligations which, in turn, could lead to an
increase in service cost and amortization cost through amorti-
zation of actuarial gain or loss, a decrease in interest cost, and
vice versa. A decrease of 50 basis points in the discount rate
increases the projected beneﬁ t obligation by approximately 9%.
The net effect of changes in the discount rate, as well as the
net effect of other changes in actuarial assumptions and expe-
rience, is deferred until subsequent periods.
Decreases in expected returns on plan assets may increase
net periodic beneﬁ t cost by decreasing the expected return
amounts, while differences between expected value and actual
fair value of those assets could affect pension expense in the
following years, and vice versa. For ﬁ scal 2010, a change of 50
basis points in the expected long-term rate of return on plan
assets would cause a change of approximately ¥3,290 million in
net periodic beneﬁ t cost. Canon multiplies management’s
expected long-term rate of return on plan assets by the value
of its plan assets, to arrive at the expected return on plan
assets that is included in pension expense. Canon defers rec-
ognition of the difference between this expected return on plan
assets and the actual return on plan assets. The net deferral
affects future pension expense.
Canon recognizes the funded status (i.e., the difference
between the fair value of plan assets and the projected beneﬁ t
obligations) of its pension plans in its consolidated balance
sheets, with a corresponding adjustment to accumulated other
comprehensive income (loss), net of tax.

Net sales
Operating proﬁ t
Income before income taxes
Net income attributable to Canon Inc.

Millions of yen

Thousands of
U.S. dollars

2010

change

2009

change

2008

2010

¥3,706,901 +15.5% ¥3,209,201
217,055
219,355
131,647

387,552 +78.6
392,863 +79.1
246,603 +87.3

–21.6% ¥4,094,161 $45,764,210
4,784,593
–56.2
4,850,160
–54.4
3,044,481
–57.4

496,074
481,147
309,148

CANON ANNUAL REPORT 2010

Sales
Canon’s consolidated net sales in ﬁ scal 2010 totaled ¥3,706,901
million (U.S.$45,764 million), representing a 15.5% increase from
the previous ﬁ scal year. This increase of sales was due to a sub-
stantial recovery in sales of laser printers among ofﬁ ce prod-
ucts, continued robust sales of such consumer products as
digital SLR cameras, the increase in sales within the Industry
and Other Business Unit, and the effects of consolidation aris-
ing from corporate acquisitions, such as Océ N.V. (“Océ”).
Canon made Océ into a consolidated subsidiary in March 2010
to strengthen the printing business. Océ is engaged in research
and development, manufacture and sale of document manage-
ment systems, printing systems for professionals and high-
speed, wide-format digital printing systems. The amounts of net
sales of Océ included in the Canon’s consolidated statement of
income from the acquisition date to the year ended December
31, 2010 was ¥ 246,518 million (U.S.$3,043 million).
Overseas operations are signiﬁ cant to Canon’s operating
results and generated approximately 81% of total net sales in
ﬁ scal 2010. Such sales are denominated in the applicable local
currency and are subject to ﬂ uctuations in the value of the yen
to those currencies. Despite efforts to reduce the impact of cur-
rency ﬂ uctuations on operating results, including localization of
manufacturing in some regions along with procuring parts and
materials from overseas suppliers, Canon believes such ﬂ uctu-
ations have had and will continue to have a signiﬁ cant effect on
its results of operations.
The average value of the yen in ﬁ scal 2010 was ¥87.40 to the
U.S. dollar, and ¥114.97 to the euro, representing an apprecia-
tion of about ¥6 or 6% to the U.S. dollar, and a signiﬁ cant appre-
ciation of approximately ¥15 or 12% against the euro, compared
with the previous year. The effects of foreign exchange rate ﬂ uc-
tuations negatively affected net sales by approximately
¥193,900 million in 2010. This unfavorable impact consisted of
approximately ¥86,700 million for U.S. dollar denominated sales,
¥101,100 million for euro denominated sales and ¥6,100 million
for other foreign currency denominated sales.

Cost of sales
Cost of sales principally reﬂ ects the cost of raw materials, parts
and labor used by Canon in the manufacture of its products. A
portion of the raw materials used by Canon is imported or includes
imported materials. Many of these raw materials are subject to
ﬂ uctuations in world market prices accompanied by ﬂ uctuations in
exchange rates that may affect Canon’s cost of sales. Other com-
ponents of cost of sales include depreciation expenses from plants,
maintenance expenses, light and fuel expenses along with rent
expenses. The ratio of cost of sales to net sales for ﬁ scal 2010 and
2009 was 51.9% and 55.5%, respectively.

Gross proﬁ t
Canon’s gross proﬁ t in ﬁ scal 2010 increased by 24.9% to
¥1,783,088 million (U.S.$22,013 million) from ﬁ scal 2009. The
gross proﬁ t ratio rose by 3.6 points year on year to 48.1%.
Despite the signiﬁ cant impact of the strong yen, this improve-
ment was achieved due to the launch of new products and
ongoing cost-reduction efforts, along with heightened produc-
tion turnover accompanying ramped-up production.

Operating expenses
The major components of operating expenses are payroll, R&D,
advertising expenses and other marketing expenses. Despite
the negative impact of consolidation of ¥172,800 million
(U.S.$2,133 million), continued Group-wide efforts to signiﬁ cant-
ly reduce spending contributed to a decline in total operating
expenses to sales ratio of 37.6% for ﬁ scal 2010, a 0.1 point
improvement compared with ﬁ scal 2009.

Operating proﬁ t
Operating proﬁ t in ﬁ scal 2010 increased 78.6% to a total of
¥387,552 million (U.S.$4,785 million) from ﬁ scal 2009, constitut-
ing 10.5% of net sales.

Other income (deductions)
Other income (deductions) for ﬁ scal 2010 improved by ¥3,011
million (U.S.$37 million), mainly due to earnings and losses on
investments in afﬁ liated companies.

Income before income taxes
Income before income taxes in ﬁ scal 2010 was ¥392,863 million
(U.S.$4,850 million), an increase of 79.1% from ﬁ scal 2009, and
constituted 10.6% of net sales.

Income taxes
Provision for income taxes in ﬁ scal 2010 increased by ¥56,038
million (U.S.$692 million) from ﬁ scal 2009, primarily as a result
of the increase in income before income taxes. The effective
tax rate during ﬁ scal 2010 dropped by 2.6% compared with ﬁ s-
cal 2009. This was due mainly to an increase in tax deduction
for R&D expenses in ﬁ scal 2010.

Return on Sales
(%)

11.0

10.9

6.7

7.6

4.1

CANON ANNUAL REPORT 2010

Net income attributable to Canon Inc.
As a result, net income attributable to Canon Inc. in ﬁ scal 2010
increased by 87.3% to ¥246,603 million (U.S.$3,044 million),
which represents a 6.7% return on net sales.

Segment information
Canon divides its businesses into three segments: the Ofﬁ ce
Business Unit, the Consumer Business Unit and the Industry
and Others Business Unit.
(cid:129) The Ofﬁ ce Business Unit mainly includes Ofﬁ ce network
digital MFDs / Color network digital MFDs / Personal-use net-
work digital MFDs / Ofﬁ ce copying machines /Full-color copying

machines / Personal-use copying machines /Laser printers /
Large format inkjet printers/ Digital production printers
(cid:129) The Consumer Business Unit mainly includes Digital SLR
cameras / Compact digital cameras / Interchangeable lenses /
Digital video camcorders / Inkjet multifunction peripherals /
Single function inkjet printers / Image scanners / Broadcast
lenses
(cid:129) The Industry and Others Business Unit mainly includes
Semiconductor lithography equipment / LCD lithography equip-
ment / Medical image recording equipment / Ophthalmic prod-
ucts / Magnetic heads / Micromotors / Computers / Handy
terminals / Document scanners / Calculators.

Sales by segment
Please refer to the table of sales by segment in Note 24 of the Notes to Consolidated Financial Statements.
Canon’s sales by segment are summarized as follows:

SALES BY SEGMENT

Ofﬁ ce
Consumer
Industry and Others
Eliminations
Total

Millions of yen

Thousands of
U.S. dollars

2010

change

2009

change

2008

2010

1,391,327

¥1,987,269 +20.8% ¥1,645,076
–26.8% ¥2,246,609
1,456,075
1,301,160
+6.9
–10.6
522,405
–31.5
357,998
432,958 +20.9
(130,928)
(95,033) —
(104,653) —
–21.6% ¥4,094,161

¥3,706,901 +15.5% ¥3,209,201

$24,534,185
17,176,877
5,345,160
(1,292,012)
$45,764,210

Sales by Segment
(Millions of yen)

Sales by Geographic Area
(Millions of yen)

Office Business Unit
Consumer Business Unit
Industry and Others Business Unit
Eliminations

Japan
Americas
Europe
Asia and Oceania

4,481,346

4,156,759

4,094,161

3,706,901

3,209,201

5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

4,481,346

4,156,759

4,094,161

3,706,901

3,209,201

5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

CANON ANNUAL REPORT 2010

Sales of the Ofﬁ ce Business Unit constituting 53.6% of con-
solidated net sales, increased by 20.8% to ¥1,987,269 million
(U.S.$24,534 million) in ﬁ scal 2010. Sales volume of both color
and monochrome network digital MFDs increased, boosted by
the recovery in demand for ofﬁ ce equipment along with the
introduction of new imageRUNNER ADVANCE-series products.
Laser printers recorded a substantial increase in sales volume.
The consolidation of Océ also contributed to the sales increase.

Sales of the Consumer Business Unit constituting 37.5% of
consolidated net sales, increased by 6.9% to ¥1,391,327 million
(U.S.$17,177 million) in ﬁ scal 2010. Sales volumes increased sig-
niﬁ cantly for such digital SLR cameras as EOS Digital Rebel T1i
(EOS 500D) and new EOS Digital Rebel T2i (EOS 550D), the com-
petitively priced model, along with the EOS 5D Mark II, EOS 7D
and new 60D, the advanced-amateur models. As for compact
digital cameras, the Company launched ﬁ ve new ELPH (IXUS)-
series models and seven new PowerShot-series models, boost-
ing sales volumes particularly in emerging markets. As for inkjet
printers, sales volume increased from year-ago level particular-
ly in Asia.

Sales of the Industry and Others Business Unit increased
by 20.9% in ﬁ scal 2010, to ¥432,958 million (U.S.$5,345 million).
Within this segment, sales volume of LCD lithography equip-
ment, semiconductor lithography and semiconductor-related
independent business sales by Group subsidiaries increased.
Sales of the Industry and Others Business Unit constituted
11.7% of consolidated net sales in ﬁ scal 2010.

Intersegment sales of ¥104,653 million (U.S.$1,292 million), repre-
senting 2.8% of total sales, are eliminated from the total sales of
the three segments, and are described as “Eliminations”.

Sales by geographic area
Please refer to the table of sales by geographic area in Note 24
of the Notes to Consolidated Financial Statements.

SALES BY GEOGRAPHIC AREA

A geographical analysis indicates that net sales in ﬁ scal 2010
increased in the major geographic areas.

In Japan, sales decreased by 0.9% in ﬁ scal 2010.
In the Americas, net sales increased by 14.4% on yen basis in

ﬁ scal 2010, due to an increase in sales volume of digital SLR
cameras and laser printers.

In Europe, net sales increased by 17.8% on yen basis in ﬁ scal

2010, mainly due to rebounded sales of laser printers.
Sales in Asia and Oceania increased by 32.0% on a yen basis
in ﬁ scal 2010, largely due to the increased sales of digital SLR
cameras.
A summary of net sales by geographic area is provided below.

Operating proﬁ t by segment
Please refer to the table of segment information in Note 24 of
the Notes to Consolidated Financial Statements.

Operating proﬁ t for the Ofﬁ ce Business Unit in ﬁ scal 2010
increased by ¥63,926 million (U.S.$789 million) to ¥293,322 mil-
lion (U.S.$3,621 million). This increase resulted primarily from
the increase in sales.

Operating proﬁ t for the Consumer Business Unit in ﬁ scal
2010 increased by ¥54,573 million (U.S.$674 million) to ¥238,065
million (U.S.$2,939 million). This increase resulted primarily from
the increase in sales.

Operating proﬁ t for the Industry and Others Business Unit
in ﬁ scal 2010 was a loss of ¥9,831 million (U.S.$121 million).
Signiﬁ cant recovery of sales volume contributed to reduction of
loss amount by ¥66,125 million (U.S.$816 million) .

Japan
Americas
Europe
Asia and Oceania

Total

Millions of yen

2010

change

2009

change

2008

¥ 695,749

–0.9% ¥ 702,344
894,154
995,150
617,553
¥3,706,901 +15.5% ¥3,209,201

1,023,299 +14.4
1,172,474 +17.8
815,379 +32.0

–19.1% ¥ 868,280
1,154,571
–22.6
1,341,400
–25.8
–15.4
729,910
–21.6% ¥4,094,161

Thousands of
U.S. dollars

2010

$ 8,589,494
12,633,321
14,474,988
10,066,407
$45,764,210

Note: This summary of net sales by geographic area is determined by the location where the product is shipped to the customer.

CANON ANNUAL REPORT 2010

FOREIGN OPERATIONS AND FOREIGN CURRENCY
TRANSACTIONS
Canon’s marketing activities are performed by subsidiaries in
various regions in local currencies, while the cost of sales is
generally in yen. Given Canon’s current operating structure,
appreciation of the yen has a negative impact on net sales and
the gross proﬁ t ratio. To reduce the ﬁ nancial risks from changes
in foreign exchange rates, Canon utilizes derivative ﬁ nancial
instruments, which consist principally of forward currency
exchange contracts.
The operating proﬁ t on foreign operation sales is usually
lower than that from domestic operations because foreign
operations consist mainly of marketing activities. Marketing
activities are generally less proﬁ table than production activities,
which are mainly conducted by the Company and its domestic
subsidiaries. Please refer to the table of geographic information
in Note 24 of the Notes to Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents in ﬁ scal 2010 increased by
¥45,545 million (U.S.$562 million) to ¥840,579 million (U.S.$10,378
million), compared with ¥795,034 million in ﬁ scal 2009 and
¥679,196 million in ﬁ scal 2008. Canon’s cash and cash equiva-
lents are typically denominated both in Japanese yen and in U.S.
dollar, with the remainder denominated in foreign currencies.
Net cash provided by operating activities in ﬁ scal 2010
increased by ¥133,178 million (U.S.$1,644 million) from the pre-
vious year to ¥744,413 million (U.S.$9,190 million), as a result of
signiﬁ cant increase of proﬁ t. Cash ﬂ ow from operating activities
consisted of the following key components: the major compo-
nent of Canon’s cash inﬂ ow is cash received from customers,
and the major components of Canon’s cash outﬂ ow are pay-
ments for parts and materials, selling, general and administra-
tive expenses, and income taxes.
For ﬁ scal 2010, cash inﬂ ow from cash received from custom-
ers increased, due to the signiﬁ cant increase of sales. There
were no signiﬁ cant changes in Canon’s collection rates. Cash
outﬂ ow for payments for parts and materials also increased, as
a result of an increase in net sales, however this increase
remained within a range of net sales increase due to cost
reductions activities. Cost reductions reﬂ ect a decline in unit
prices of parts and raw materials, as well as a streamlining of
the process of using these parts and materials through promot-
ing efﬁ ciency in operations. Cash outﬂ ow for payments for sell-
ing, general and administrative expenses increased, however,
also remained within the range of sales increase due to cost-
cutting efforts.
Net cash used in investing activities in ﬁ scal 2010 was
¥342,133 million (U.S.$4,224 million), compared with ¥ 370,244
million in ﬁ scal 2009 and ¥472,480 million in ﬁ scal 2008, con-
sisting primarily of purchases of ﬁ xed assets and acquisition of
shares of Océ. The purchases of ﬁ xed assets, which totaled
¥199,152 million (U.S.$2,459 million) in ﬁ scal 2010, were focused
on items relevant to raising production capacity and reducing
production cost.
Canon deﬁ nes “free cash ﬂ ow” by deducting the cash ﬂ ows
from investing activities from the cash ﬂ ows from operating
activities. For ﬁ scal 2010, free cash ﬂ ow totaled ¥402,280 million

(U.S.$4,966 million) as compared with ¥240,991 million for ﬁ scal
2009. Canon’s management recognizes that constant and
intensive investment in facilities and R&D is required to main-
tain and strengthen the competitiveness of its products.
Canon’s management seeks to meet its capital requirements
with cash ﬂ ow principally earned from its operations, therefore,
its capital resources are primarily sourced from internally gen-
erated funds. Accordingly, Canon has included the information
with regard to free cash ﬂ ow as its management frequently
monitors this indicator, and believes that such indicator is ben-
eﬁ cial to the understanding of investors. Furthermore, Canon’s
management believes that this indicator is signiﬁ cant in under-
standing Canon’s current liquidity and the alternatives of use in
ﬁ nancing activities because it takes into consideration its oper-
ating and investing activities. Canon refers to this indicator
together with relevant U.S. GAAP ﬁ nancial measures shown in
its consolidated statements of cash ﬂ ows and consolidated bal-
ance sheets for cash availability analysis.
Net cash used in ﬁ nancing activities totaled ¥279,897 million
(U.S.$3,456 million) in ﬁ scal 2010, mainly resulting from the divi-
dend payout of ¥136,103 million (U.S.$1,680 million), repurchase
of treasury stock and repayment of borrowings of Océ N.V. The
Company paid dividends in ﬁ scal 2010 of ¥110.00 (U.S.$1.36)
per share.
To the extent Canon relies on external funding for its liquidity
and capital requirements, it generally has access to various
funding sources, including the issuance of additional share cap-
ital, long-term debt or short-term loans. While Canon has been
able to obtain funding from its traditional ﬁ nancing sources and
from the capital markets, and believes it will continue to be
able to do so in the future, there can be no assurance that
adverse economic or other conditions will not affect Canon’s
liquidity or long-term funding in the future.
Short-term loans (including the current portion of long-term
debt) amounted to ¥7,200 million (U.S.$89 million) at December
31, 2010 compared with ¥4,869 million at December 31, 2009.
Long-term debt (excluding the current portion) amounted to
¥4,131 million (U.S.$51 million) at December 31, 2010 compared
with ¥4,912 million at December 31, 2009.
Canon’s long-term debt (excluding the current portion) main-
ly consists of lease obligations.

In order to facilitate access to global capital markets, Canon

obtains credit ratings from two rating agencies: Moody’s
Investors Services, Inc. (“Moody’s”) and Standard and Poor’s
Ratings Services (“S&P”). In addition, Canon maintains a rating
from Rating and Investment Information, Inc. (“R&I”), a rating
agency in Japan, for access to the Japanese capital market.
As of March 15, 2011, Canon’s debt ratings are: Moody’s: Aa1
(long-term); S&P: AA (long-term), A-1+ (short-term); and R&I:
AA+ (long-term). Canon does not have any rating downgrade
triggers that would accelerate the maturity of a material
amount of its debt. A downgrade in Canon’s credit ratings or
outlook could, however, increase the cost of its borrowings.

Increase in property, plant and equipment on an accrual
basis in ﬁ scal 2010 amounted to ¥158,976 million (U.S.$1,963
million) compared with ¥216,128 million in ﬁ scal 2009 and
¥361,988 million in ﬁ scal 2008. In ﬁ scal 2010, decrease in

CANON ANNUAL REPORT 2010

property, plant and equipment was due to limiting investment
to necessary facilities. For ﬁ scal 2011, Canon projects its
increase in property, plant and equipment will be approximate-
ly ¥260,000 million (U.S.$3,210 million).

Employer contributions to Canon’s worldwide deﬁ ned ben-
eﬁ t pension plans were ¥21,435 million (U.S.$265 million) in ﬁ s-
cal 2010, ¥18,232 million in ﬁ scal 2009, ¥23,033 million in ﬁ scal
2008. In addition, employer contributions to Canon’s world-
wide deﬁ ned contribution pension plans were ¥11,780 million
(U.S.$145 million) in ﬁ scal 2010, ¥9,148 million in ﬁ scal 2009,
and ¥10,840 million in ﬁ scal 2008.

Working capital in ﬁ scal 2010 decreased by ¥601 million
(U.S.$7 million), to ¥1,233,488 million (U.S.$15,228 million), com-
pared with ¥1,234,089 million in ﬁ scal 2009 and ¥1,120,848 mil-
lion in ﬁ scal 2008. Canon believes its working capital will be
sufﬁ cient for its requirements for the foreseeable future. Canon’s
capital requirements are primarily dependent on management’s
business plans regarding the levels and timing of purchases of
ﬁ xed assets and investments. The working capital ratio (ratio of
current assets to current liabilities) for ﬁ scal 2010 was 2.38
compared to 2.57 for ﬁ scal 2009 and to 2.19 for ﬁ scal 2008.

Return on assets (net income attributable to Canon Inc.
divided by the average of total assets) was 6.3% in ﬁ scal 2010,
compared to 3.4% in ﬁ scal 2009 and 7.3% in ﬁ scal 2008.

Return on Canon Inc. stockholders’ equity (net income
attributable to Canon Inc. divided by the average of total

Canon Inc. stockholders’ equity) was 9.2% in ﬁ scal 2010 com-
pared with 4.9% in ﬁ scal 2009 and 11.1% in ﬁ scal 2008.

Debt to total assets ratio was 0.3%, 0.3% and 0.4% as of
December 31, 2010, 2009 and 2008, respectively. Canon had
short-term loans and long-term debt of ¥11,331 million
(U.S.$140 million) as of December 31, 2010, ¥9,781 million as of
December 31, 2009 and ¥13,963 million as of December 31, 2008.

OFF-BALANCE SHEET ARRANGEMENTS
As part of its ongoing business, Canon does not participate in
transactions that generate relationships with unconsolidated
entities or ﬁ nancial partnerships, such as entities often referred
to as structured ﬁ nance or special purpose entities, which
would have been established for the purpose of facilitating off-
balance sheet arrangements or other contractually narrow or
limited purposes.
Canon provides guarantees for bank loans of its employees,
afﬁ liates and other companies. Canon would have to perform
under a guarantee if the borrower defaults on a payment within
the contract periods of 1 year to 30 years in the case of
employees with housing loans, and 1 year to 10 years in the
case of afﬁ liates and other companies. The maximum amount
of undiscounted payments Canon would have had to make in
the event of default by all borrowers was ¥16,746 million
(U.S.$207 million) at December 31, 2010. The carrying amounts
of the liabilities recognized for Canon’s obligations as a guaran-
tor under those guarantees were insigniﬁ cant.

Increase in Property,
Plant and Equipment
(Millions of yen)

Working Capital Ratio

Return on Canon Inc.
Stockholders’ Equity
(%)

2.57

2.38

2.39

2.19

2.08

500,000

428,549

400,000

379,657

361,988

300,000

200,000

100,000

216,128

158,976

3.0

2.5

2.0

1.5

1.0

0.5

0.0

16.3

16.5

11.1

9.2

4.9

CANON ANNUAL REPORT 2010

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following summarizes Canon’s contractual obligations at December 31, 2010.

Millions of yen

Contractual obligations:
Long-term debt:

Capital lease obligations
Other long-term debt
Operating lease obligations
Purchase commitments for:

Property, plant and equipment
Parts and raw materials
Other long-term liabilities:

Total

Less than 1 year

1-3 years

3-5 years

More than 5 years

Payments due by period

8,247
1,013
83,800

¥ 4,268
861
23,413

¥ 2,806
55
32,344

¥ 1,105
50
13,941

68
47
14,102

29,383
86,434

—
—

Contribution to deﬁ ned beneﬁ t pension plans
Total

30,071
¥238,948

30,071
¥174,430

—
¥35,205

—
¥15,096

—
¥14,217

Note: The table does not include provisions for uncertain tax positions and related accrued interest and penalties, as the speciﬁ c timing of future payments related to

these obligations cannot be projected with reasonable certainty. See Note 13, Income Taxes in the Notes to Consolidated Financial Statements for further details.
Contribution to deﬁ ned beneﬁ t pension plans reﬂ ects the expected amount only for the next ﬁ scal year, since contributions beyond the next ﬁ scal year are not
currently determinable due to uncertainties related to changes in actuarial assumptions, returns on plan assets and changes to plan membership.

Thousands of U.S. dollars

Contractual obligations:
Long-term debt:

Capital lease obligations
Other long-term debt
Operating lease obligations
Purchase commitments for:

Property, plant and equipment
Parts and raw materials
Other long-term liabilities:

Total

Less than 1 year

1-3 years

3-5 years

More than 5 years

Payments due by period

$ 101,815
12,506
1,034,568

52,691
10,630
289,049

$ 34,642
679
399,309

$ 13,642
617
172,112

840
580
174,098

362,753
1,067,086

—
—

Contribution to deﬁ ned beneﬁ t pension plans
Total

371,247
$2,949,975

371,247
$2,153,456

—
$434,630

—
$186,371

—
$175,518

CANON ANNUAL REPORT 2010

Canon provides warranties of generally less than one year
against defects in materials and workmanship on most of its
consumer products. Estimated product warranty related costs
are established at the time revenue are recognized and are
included in selling, general and administrative expenses.
Estimates for accrued product warranty cost are primarily
based on historical experience, and are affected by ongoing
product failure rates, speciﬁ c product class failures outside of
the baseline experience, material usage and service delivery
costs incurred in correcting a product failure. As of December
31, 2010, accrued product warranty costs amounted to ¥13,343
million (U.S.$165 million).
At December 31, 2010, commitments outstanding for the
purchase of property, plant and equipment were approximately
¥29,383 million (U.S.$363 million), and commitments outstand-
ing for the purchase of parts and raw materials were approxi-
mately ¥86,434 million (U.S.$1,067 million), both for use in the
ordinary course of its business. Canon anticipates that funds
needed to fulﬁ ll these commitments will be generated internally
through operations.
During ﬁ scal 2011, Canon expects to contribute ¥22,055 mil-
lion (U.S.$272 million) to its Japanese deﬁ ned beneﬁ t pension
plans and ¥8,016 million (U.S.$99 million) to its foreign deﬁ ned
beneﬁ t pension plans.
Canon’s management believes that current ﬁ nancial resourc-
es, cash generated from operations and Canon’s potential
capacity for additional debt and/or equity ﬁ nancing will be sufﬁ -
cient to fund current and future capital requirements.

RESEARCH AND DEVELOPMENT, PATENTS
AND LICENSES
Year 2010 marks the ﬁ nal year of the Excellent Global
Corporation Plan, which started in 2006. The slogan of the third
phase (“Phase III”) is “Innovation & Sound Growth” and there
are four core strategies:

(cid:129) Realize an overwhelming No.1 position worldwide in all

current core businesses;

(cid:129) Expand operations through diversiﬁ cation;
(cid:129) Identify new business domains and accumulate neces-

sary technological capabilities; and

(cid:129) Establish new production system to sustain global com-

petitiveness.

Canon has been striving to implement the three R&D related
strategies as follows:

(cid:129) Realize an overwhelming No.1 position worldwide in all

current core businesses: Pursue development of new
products which enable “cross-media imaging” by sophis-
ticated functional synergy among the variety of Canon’s
image handling products, beneﬁ ting from the prolifera-
tion of broad band communication environment.
(cid:129) Expand operations through diversiﬁ cation: Focus on

developing various types of display, including Organic
Light-Emitting Diode displays (“OLED”).

(cid:129) Identify new business domains and accumulate neces-

sary technological capabilities: Accumulate technological
capability to create innovative products and systems in
the focused three domains of the medical imaging sector,
intelligent robot industry and safety technology domain.

Canon has developed and strengthened relationships with
universities and other research institutes, such as Kyoto
University, Tokyo Institute of Technology, Stanford University,
The University of Arizona, the New Energy and Industrial
Technology Development Organization and the National Institute of
Advanced Industrial Science and Technology to assist with fun-
damental research and to develop cutting-edge technologies.
Canon has fully introduced 3D-CAD systems across the Canon
group, boosting R&D efﬁ ciency to curtail product development
times and costs. Moreover, Canon enhanced and evolved its
simulation, measurement, and analysis technologies by estab-
lishing leading-edge facilities, including one of Japan’s highest-
performance cluster computers. As such, Canon has succeeded
in further reducing the need for prototypes, dramatically lower-
ing costs and shortening product development lead times.
Canon has R&D centers worldwide. Each R&D center is col-
laborating with other centers to achieve synergies, and is culti-
vating closer ties in ﬁ elds ranging from basic research to
product development.
Canon’s consolidated R&D expenses were ¥315,817 million
(U.S.$3,899 million) in ﬁ scal 2010, ¥304,600 million in ﬁ scal 2009
and ¥374,025 million in ﬁ scal 2008. The ratios of R&D expenses
to the consolidated total net sales for ﬁ scal 2010, 2009 and
2008 were 8.5%, 9.5% and 9.1%, respectively.

R&D Expenses
(Millions of yen)

400,000

368,261

374,025

308,307

300,000

315,817

304,600

200,000

100,000

CANON ANNUAL REPORT 2010

Canon believes that new products protected by patents will
not easily allow competitors to compete with it, and will give it
an advantage in establishing standards in the market and industry.

However, in the short term, the costs for recovery may occur
along with the decrease of revenues, which may adversely
affect on Canon to a certain degree.

RECENT DEVELOPMENT
On March 11, 2011, Japan experienced a massive earthquake
and tsunami off the Paciﬁ c coast of Northeastern Japan. The
earthquake caused damage to inventories and buildings at
manufacturing facilities primarily in the Company’s Utsunomiya
Plant, and Fukushima Canon Inc., a manufacturing subsidiary. In
addition, certain distribution warehouses of the Company and
Canon Marketing Japan Inc., a sales subsidiary, located in
Northeastern Japan sustained damage to inventories. As a
result, production operations have been suspended at certain
plants of the Company and its manufacturing subsidiaries. The
Company has organized a special taskforce, “Earthquake
Disaster Recovery Task Force”, in order to rapidly respond to
these events and is currently making effort to resume opera-
tions immediately.
Canon cannot estimate the effect of the earthquake on its
consolidated results of operations and ﬁ nancial condition as of
the issuance date of the consolidated ﬁ nancial statements.

MARKET RISK EXPOSURE
Canon is exposed to market risks, including changes in foreign
currency exchange rates, interest rates and prices of market-
able securities and investments. In order to hedge the risks of
changes in foreign currency exchange rates, Canon uses deriv-
ative ﬁ nancial instruments.

Equity price risk
Canon holds marketable securities included in current assets,
which consist generally of highly-liquid and low-risk instru-
ments. Investments included in noncurrent assets are held as
long-term investments. Canon does not hold marketable secu-
rities and investments for trading purposes.
Maturities and fair values of such marketable securities and
investments with original maturities of more than three
months, all of which were classiﬁ ed as available-for-sale securi-
ties, were as follows at December 31, 2010 and 2009.

Available-for-sale securities

Due within one year
Due after one year through ﬁ ve years
Due after ﬁ ve years through ten years
Equity securities

Millions of yen

Thousands of U.S. dollars

Cost

¥ 1,001
952
2,026
18,288
¥22,267

Fair value

¥ 1,001
972
1,981
23,402
¥27,356

Cost

$ 12,358
11,753
25,012
225,778
$274,901

Fair value

$ 12,358
12,000
24,456
288,914
$337,728

Foreign currency exchange rate and interest
rate risk
Canon operates internationally, exposing it to the risk of changes
in foreign currency exchange rates. Derivative ﬁ nancial instru-
ments are comprised principally of foreign currency exchange
contracts utilized by the Company and certain of its subsidiaries
to reduce the risk. Canon assesses foreign currency exchange
rate risk by continually monitoring changes in the exposures and
by evaluating hedging opportunities. Canon does not hold or
issue derivative ﬁ nancial instruments for trading purposes.
Canon is also exposed to credit-related losses in the event of
non-performance by counterparties to derivative ﬁ nancial instru-
ments, but it is not expected that any counterparties will fail to
meet their obligations. Most of the counterparties are interna-
tionally recognized ﬁ nancial institutions and selected by Canon

taking into account their ﬁ nancial condition, and contracts are
diversiﬁ ed across a number of major ﬁ nancial institutions.
Canon’s international operations expose Canon to the risk of
changes in foreign currency exchange rates. Canon uses for-
eign exchange contracts to manage certain foreign currency
exchange exposures principally from the exchange of U.S. dol-
lars and euros into Japanese yen. These contracts are primarily
used to hedge the foreign currency exposure of forecasted
intercompany sales and intercompany trade receivables which
are denominated in foreign currencies. In accordance with
Canon’s policy, a speciﬁ c portion of foreign currency exposure
resulting from forecasted intercompany sales are hedged using
foreign exchange contracts which principally mature within
three months.

CANON ANNUAL REPORT 2010

The following table provides information about Canon’s
major derivative ﬁ nancial instruments related to foreign curren-
cy exchange transactions existing at December 31, 2010. All of

the foreign exchange contracts described in the following table
have a contractual maturity date in 2011.

Millions of yen

Forwards to sell foreign currencies:
Contract amounts
Estimated fair value
Forwards to buy foreign currencies:
Contract amounts
Estimated fair value

Thousands of U.S. dollars

Forwards to sell foreign currencies:
Contract amounts
Estimated fair value
Forwards to buy foreign currencies:
Contract amounts
Estimated fair value

U.S.$

Euro

Others

Total

¥254,676
4,963

¥178,962
6,134

¥32,723
(282)

¥466,361
10,815

¥ 21,944
(106)

¥ 24,414
(55)

¥ 2,328
383

¥ 48,686
222

U.S.$

Euro

Others

Total

$3,144,148
61,272

$2,209,407
75,728

$403,988
(3,481)

$5,757,543
133,519

$ 270,914
(1,309)

$ 301,407
(679)

$ 28,741
4,728

$ 601,062
2,740

All of Canon’s long-term debt is ﬁ xed rate debt. Canon
expects that fair value changes and cash ﬂ ows resulting from
reasonable near-term changes in interest rates will be immate-
rial. Accordingly, Canon believes interest rate risk is insigniﬁ -
cant. See also Note 10 of the Notes to Consolidated Financial
Statements.
Changes in the fair value of derivative ﬁ nancial instruments
designated as cash ﬂ ow hedges, including foreign exchange
contracts associated with forecasted intercompany sales, are
reported in accumulated other comprehensive income (loss).
These amounts are subsequently reclassiﬁ ed into earnings
through other income (deductions) in the same period as the
hedged items affect earnings. Substantially all such amounts
recorded in accumulated other comprehensive income (loss) at
year-end are expected to be recognized in earnings over the
next 12 months. Canon excludes the time value component
from the assessment of hedge effectiveness. Changes in the

fair value of a foreign exchange contract for the period
between the date that the forecasted intercompany sales
occur and its maturity date are recognized in earnings and not
considered hedge ineffectiveness.
The amount of the hedging ineffectiveness was not material
for the years ended December 31, 2010, 2009 and 2008. The
amounts of net losses excluded from the assessment of hedge
effectiveness (time value component) which was recorded in
other income (deductions) was ¥302 million (U.S.$4 million),
¥462 million and ¥3,701 million for the years ended December
31, 2010, 2009 and 2008, respectively.
Canon has entered into certain foreign currency exchange
contracts to manage its foreign currency exposures. These for-
eign currency exchange contracts have not been designated as
hedges. Accordingly, the changes in fair values of these con-
tracts are recorded in earnings immediately.

CANON ANNUAL REPORT 2010

LOOKING FORWARD
As for the global economy, in the U.S., despite the risk of a
slowdown due to the ongoing credit crisis and high unemploy-
ment, we expect the trend toward gradual recovery to contin-
ue. In Europe, while concerns remain regarding ﬁ nancial
instability, we believe the economy will make steady progress
toward recovery. In Asia, the overall trend toward economic
recovery is expected to continue, fueled by such factors as
continued strong economic expansion in such countries as
China and India. As for Japan, while the economy will likely con-
tinue to realize a gradual economic rebound against the back-
drop of a global economic recovery, we expect the current
trend of economic deﬂ ation to continue due to weak domestic
consumption.
Amid this climate, Canon has launched its latest ﬁ ve-year
plan: Phase IV of the Global Excellent Corporation Plan (2011-
2015). Our ultimate aim is to realize our goal of joining the ranks
of the world’s top 100 companies in terms of all major manage-
ment indicators.

In order to achieve our targets, we aim to expand our scale

and business operations, further strengthening our imaging-
related businesses and working to expand business domains
by cultivating such areas as medical and industrial equipment.
At the same time, we will make efforts to transform our manu-
facturing operations in keeping with the changing times
through the reinforcement of such basic functions as research
and development, production, and sales and marketing.
Speciﬁ cally, we will strive to change to a situation where prod-
ucts developed in each region are sold globally, accelerating
transition to a three regional headquarters management sys-
tem, which includes R&D centers in Japan, the U.S. and Europe,
as we solicit the world’s great minds and innovative power.
Targeting this kind of change and transformation, we will also
make active use of M&As. For this, we set up a special organi-
zation in charge of further promoting M&As, effective January
1, 2011.
At the same time, we will work to solidify our foundation as a
leading environmental company that aims for both growth and
environmental conservation, by further raising the environmen-
tal performance of our products and reducing the impact of all
corporate activities on the environment.

Ofﬁ ce Business Unit
In 2010, Canon’s copying machine and MFD businesses
rebounded substantially from the economic downturn, which
had affected the entire industry in 2009. Emerging markets,
such as in Asia, were particularly notable for their growth.
The importance of providing added value in the form of net-
working, integration, color printing, multifunction and solutions
has grown in the ofﬁ ce imaging products business. Canon
seeks to maintain its leading position in both the printing and in
the ofﬁ ce products markets.
Canon has matched its business strategy to market trends by
strengthening its lineup of digital color network MFDs and print-
on-demand machines. In 2010, Canon further expanded the
imageRUNNER ADVANCE series with the introduction of a
monochrome lineup and a low-end color device. We also
launched the imagePRESS C7010VP series, designed to meet
the needs of print professionals in commercial print shops with
advanced function. To maintain and enhance its competitive
edge and to meet increasingly sophisticated customer
demands, Canon will continue reinforcing its hardware and
software product lineups and solutions capability.
Canon’s laser printer business has a strong market position.
The market declined rapidly in the wake of the global economic
downturn but slowly recovered in 2010.

In the monochrome laser printer market, sales to the micro-

ofﬁ ce/ home ofﬁ ce segment expanded.
The color laser printer market is expected to grow over the
long term, although demand slowed recently due to the eco-
nomic downturn. Competition has intensiﬁ ed as competitors
have pursued aggressive pricing strategies to establish market
share.
Canon is promoting technological development in order to
provide competitive products in all segments with a focus on
bringing new and improved offerings to market in a well-timed
manner.
The large format printer market shrank in 2009. However, the
trend was toward recovery in 2010. Total business growth in
2010 increased slightly, with particularly strong growth in Asia.
In 2010, we launched three new 12-color printer models
(iPF6300/6350/8300), designed to meet the needs of the graph-
ic art market (exceptional color reproduction, high print quality,
and furthermore, high usability).
We also released two new CAD models (iPF815/825), for a
market that demands high productivity. These models have
achieved a strong reputation, resulting in double-digit unit sales
growth in 2010 as compared to 2009. Market share of our CAD
models also increased steadily during 2010.

CANON ANNUAL REPORT 2010

Consumer Business Unit
The digital SLR market continued to grow steadily in 2010.
Additional manufacturers entered the market this year, expand-
ing the market with mirrorless digital cameras, and solid growth
in digital SLR cameras continued. These trends show that there
is still a strong market need for high-quality digital photography.
With respect to digital SLR cameras, the market shows
demand for increased numbers of pixels. Higher sensitivity,
miniaturization, reduced weight and video functions have
become standard speciﬁ cations as well, including the support
by each company of full HD image quality in this market. By
offering new products based on cutting-edge technology,
Canon seeks to continue its growth into the foreseeable future.
In addition, sales volume in emerging markets appears ready
to expand dramatically. For this reason, there is an urgent need
to upgrade sales structures and other systems in order to han-
dle this expansion.
During ﬁ scal year 2010, the compact digital camera market
was driven by growth in China, Russia, and other emerging
economic regions. Although markets in some developed eco-
nomic regions have expanded due to a reduction in average
prices across the industry, overall, such regions have remained
stable or have declined as compared to the previous year. Total
global growth increased slightly, while Canon has maintained a
high share at the same level as during the previous consolidat-
ed ﬁ scal year.
Developed markets are expected to remain stable in 2011,
and emerging markets are expected to remain on a positive
growth track, resulting in a projected slight increase worldwide
as compared to consolidated ﬁ scal 2010.
A ﬁ erce price war and the strong yen have been drastically
squeezing proﬁ t margins in the digital camera market. Although
the industry as a whole is relying more and more on electronic
manufacturing service (“EMS”) companies and cost competi-
tion is expected to intensify in the future, we plan to take
advantage of our industry-leading economies of scale and its
100% internal manufacturing system in order to maintain and
solidify our proﬁ tability.
We expect continued growth in the interchangeable lens
market due to the rapid spread of digital SLR cameras and mir-
rorless digital cameras. Canon aims to continue expanding its
sales and market share by introducing products with features
that satisfy customer needs, such as lenses with image stabiliz-
er functionality.
The global digital video camcorder market has diversiﬁ ed due to
the introduction of new recording media, such as ﬂ ash memory.
During this consolidated ﬁ scal year, however, trends toward
ﬂ ash memory and HD as the future mainstream medium
became clear. Despite the worldwide economic downturn that
started in the second half of 2008, the ﬂ ash memory and HD
market segments have continued to grow year-on-year. The
new, lowest-priced webcam product category (under $200) has
proven strong, particularly in North America. Webcams appeal
to a user segment that wants to enjoy convenient video capa-
bilities, and they have been selling in increasing numbers.
Canon is working to expand sales of its powerful lineup of
products to meet a wide range of user needs with even greater

added value and seeks to differentiate itself from the competi-
tion based on its high-quality HD image technology concept.
The business application projector market experienced the
effects of the continuing economic downturn during this con-
solidated ﬁ scal year as well, resulting in a slowdown as com-
pared to previous forecasts. In particular, this downturn
affected products with high added value. However, system inte-
grators and other video professionals continue to require these
high added value products, and therefore Canon plans to con-
tinue working to maintain and expand sales.

In 2010, although expansion in the market for network cam-

eras used for surveillance video and monitoring applications
softened somewhat, this market has been recording solid
growth up until the present. We expect that the trends toward
larger numbers of pixels, advancements in video analysis tech-
nology and the industry standardization of operational com-
mands will lead to future growth in this market. In order to
avoid missing these trends, Canon is working to increase sales
with an expanded competitive lineup.
The broadcast television lens market experienced a tempo-
rary decline in the wake of the economic downturn. However,
the market has been on course for a gradual overall recovery
during consolidated ﬁ scal year 2010, partially thanks to an
expansion of the market in countries where the industry is still
emerging. Nevertheless, due to the progressive reduction in
prices caused by equipment downsizing as well as the inﬂ u-
ence of the strong yen, while revenue growth was achieved,
proﬁ ts declined. We expect this downsizing trend to continue,
and starting next year, Canon will work to expand proﬁ ts by
reinforcing its family of products aimed at responding to this
change in the industry. In the medium term, we expect that this
industry will be revitalized by increased demand for equipment
upgrades due to the industry switch to digital broadcasting as
well as demand from emerging markets. Canon already has a
large market share worldwide, and plans to increase sales and
expand its share further as the market recovers by releasing
highly competitive products to the market in a timely fashion,
further solidifying its position in the industry.
The Inkjet printer market recovered in 2010. While emerging
countries have contributed to the growth of market volume, in
advanced countries there are increasing demands of small and
home ofﬁ ce for high-value added products including MFPs with
fax and ADF function and also wireless models. Along with
basic performance, such as image quality and print speed, each
vendor began to enhance the product design, ease of use and
applications to increase user satisfaction. To manage these
trends, Canon has introduced new models with variety of new
features, such as an Intelligent Touch System, which provides
light-guided direction, and Full HD Movie Print. Thereby
strengthening its lineup from entry-level to high-end models,
Canon intends further sales expansion.

Industry and Others Business Unit
In ﬁ scal 2010, the semiconductor device market recovered strongly
from the economic downturn starting in the second half of ﬁ scal
2008. There were noteworthy improvements for semiconductor
device market categories such as DRAM and NAND-ﬂ ash memory,

CANON ANNUAL REPORT 2010

due to strong sales of PCs and smart phones, as well as the so-
called “green” products such as LED and power devices.
As a result, shipments of semiconductor lithography equip-
ment in ﬁ scal 2010 recovered sharply over ﬁ scal 2009. By mar-
ket, sales in Korea have been strong, thanks to increased
investment by major memory manufacturers, while in Japan
demand has been steadily improving for lithography equipment
for sensors and image devices.
The market for LCD lithography equipment in ﬁ scal 2010
grew dramatically from the previous year. Makers of LCD panels
have signiﬁ cantly increased their equipment investment in
order to capture growing demand in developing countries. Total
equipment investment among the top LCD panel makers grew
strongly in ﬁ scal 2010 from the previous year, topping the level
recorded during the boom market of ﬁ scal 2008.
Against this background, shipments of LCD lithography
equipment markedly improved rapidly compared to ﬁ scal 2009.
By region, shipments in Japan declined, but those to Korea,
Taiwan and China improved signiﬁ cantly. Shipments of genera-
tion-7.5 and 8 LCD lithography equipment for televisions
improved noticeably.
The medical equipment market in Europe and the United
States was adversely inﬂ uenced by the economic downturn.
However, the market for static digital X-ray equipment has been
expanding, although competition has become more severe
through the entry of computed radiography manufacturers into
the market. The medical equipment market in Asia (mainly
China) is expanding rapidly, and the static digital X-ray equip-
ment market has followed this trend.
Thin and lightweight CXDI-55C/55G portable digital radiogra-
phy system, which was released in 2009, contributed to an
increase of sales in Europe, the United States and Japan. In
2010, Canon’s overall sales increased steadily compared to the
previous ﬁ scal year. We also focused on emerging markets and
particularly, we set the low-end market in China, which is sup-
ported by the Chinese government, as a main target. As a
result, we have been successful in increasing sales to China,
and orders from Central and South America have also contrib-
uted to our U.S. sales ﬁ gures. During 2010, Canon released
dynamic digital radiography CXDI-50RF in Europe and the
United States, and Virtual Imaging, which Canon acquired in
2009, contributed to our increase in sales with its DR system.
A strategic new product, the CXDI-70C Wireless, was launched
in November 2010.
The ophthalmic products market shrank in 2010, especially in
Europe and the United States, due to the economic downturn.
However, the optical coherence tomography (“OCT”) market
expanded steadily compared to 2009. Therefore, many of
Canon’s competitors released new strategic OCT products. In
order to keep pace with these trends, Canon is striving to
increase sales by expanding competitive lineup of products to
gain the market acceptance.
Canon acquired Optopol Technology in 2010 and plans to use
Optopol Technology as a development and production center.
In 2010, sales of Optopol’s OCT technology in Japan, Europe
and the United States contributed to our net sales. Sales of
hybrid retinal cameras, ﬁ rst released in 2009, contributed to

sales in 2010, while sales of non-mydriatic retinal cameras
declined slightly due to the economic downturn in Japan,
Europe and the United States. Canon released the extremely
compact non-mydriatic retinal camera CR2 in November 2010
and aims to increase sales in this market.
Among the “imageFORMULA series” document scanners
handled by Canon Electronics Inc., the high-durability, high-
speed “DR-9050C/6050C,” compact “DR-2010C/2510C” and new
“ScanFront 300P,” with network functionality, all met with strong
market receptions, chalking up increases in units sold and reve-
nues in every region where they are marketed. Sales have been
particularly strong in China, India, and other parts of Asia, with
signiﬁ cant increases in terms of both units and revenues.
Meanwhile, in the Japanese market, strong sales of the
extremely compact and portable document scanner “DR-150”
have led a major increase in unit sales.
Sales of the FA system-related devices handled by Canon
Machinery Inc. ended the term with a year-on-year increase as
solid ﬁ rst-half results outweighed sales declines in the second
half. Die bonders had promising orders for the LED (light-emit-
ting diode) compatible “BESTEM-D01 series,” helped in particu-
lar by vigorous ﬁ rst-half capital investments by LED
manufacturers. It enjoyed signiﬁ cantly higher sales for the term,
despite lower orders in the second half.
The magnetic disk manufacturing equipment handled by
Canon ANELVA Corporation saw sales revenues more than
double from the previous term as demand for hard disk drives
to be used in servers and personal computers rose and cus-
tomers increased capital investments. Sales of magnetic head
manufacturing equipment and semiconductor ﬁ lm deposition
equipment also rose signiﬁ cantly.

Forward looking statements
The foregoing discussion and other disclosure in this report
contains forward-looking statements that reﬂ ect management’s
current views with respect to certain future events and ﬁ nan-
cial performance. Actual results may differ materially from
those projected or implied in the forward-looking statements.
Further, certain forward-looking statements are based upon
assumptions of future events that may not prove to be accu-
rate. The following important factors could cause actual results
to differ materially from those projected or implied in any for-
ward-looking statements: foreign currency exchange rate ﬂ uc-
tuations; the uncertainty of Canon’s ability to implement its
plans to localize production and other measures to reduce the
impact of foreign currency exchange rate ﬂ uctuations; uncer-
tainty as to economic conditions in Canon’s major markets;
uncertainty of continued demand for Canon’s high-value-added
products; uncertainty as to the recovery of computer and relat-
ed markets; uncertainty of recovery in demand for Canon’s
semiconductor lithography equipment; Canon’s ability to con-
tinue to develop products and to market products that incorpo-
rate new technology on a timely basis, are competitively priced,
and achieve market acceptance; the possibility of losses result-
ing from foreign currency transactions designed to reduce
ﬁ nancial risks from changes in foreign currency exchange rates;
and inventory risk due to shifts in market demand.

CANON ANNUAL REPORT 2010

TEN-YEAR FINANCIAL SUMMARY

Net sales:
Domestic
Overseas
Total

Percentage of previous year

Net income attributable to Canon Inc.
Percentage of sales

Advertising
Research and development expenses
Depreciation of property, plant and equipment
Increase in property, plant and equipment

Long-term debt, excluding current installments
Canon Inc. stockholders’ equity
Total assets
Per share data:

Income before cumulative effect of change
in accounting principle:
Basic
Diluted
Net income attributable to Canon Inc.
stockholders per share:

Basic
Diluted
Dividends per share
Stock price:
High
Low

Millions of yen (except per share amounts)

2010

2009

2008

2007

¥ 695,749
3,011,152
3,706,901
115.5%

¥ 702,344
2,506,857
3,209,201
78.4%

¥ 868,280
3,225,881
4,094,161
91.4%

¥ 947,587
3,533,759
4,481,346
107.8%

246,603
6.7%

94,794
315,817
232,327
158,976

131,647
4.1%

78,009
304,600
277,399
216,128

309,148
7.6%

112,810
374,025
304,622
361,988

488,332
10.9%

132,429
368,261
309,815
428,549

4,131
2,645,782
3,983,820

4,912
2,688,109
3,847,557

8,423
2,659,792
3,969,934

8,680
2,922,336
4,512,625

199.71
199.70

106.64
106.64

246.21
246.20

377.59
377.53

199.71
199.70
120.00

4,520
3,205

106.64
106.64
110.00

4,070
2,115

246.21
246.20
110.00

5,820
2,215

377.59
377.53
110.00

7,450
5,190

Average number of common shares in thousands
Number of employees

1,234,818
197,386

1,234,482
168,879

1,255,626
166,980

1,293,296
131,352

Common Stock Price Range (Tokyo Stock Exchange)
(Yen)

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

CANON ANNUAL REPORT 2010

2006

2005

2004

2003

2002

2001

Thousands of U.S. dollars
(except per share amounts)
2010

¥ 932,290
3,224,469
4,156,759
110.7%

¥ 856,205
2,897,986
3,754,191
108.3%

¥ 849,734
2,618,119
3,467,853
108.4%

¥ 801,400
2,396,672
3,198,072
108.8%

¥ 732,551
2,207,577
2,940,128
101.1%

¥ 827,288
2,080,285
2,907,573
107.8%

$ 8,589,494
37,174,716
45,764,210
115.5%

455,325
11.0%

116,809
308,307
235,804
379,657

384,096
10.2%

106,250
286,476
205,727
383,784

343,344
9.9%

111,770
275,300
174,397
318,730

275,730
8.6%

100,278
259,140
168,636
210,038

190,737
6.5%

71,725
233,669
158,469
198,702

167,561
5.8%

66,837
218,616
147,286
207,674

3,044,481
6.7%

1,170,296
3,898,975
2,868,235
1,962,667

15,789
2,986,606
4,521,915

27,082
2,604,682
4,043,553

28,651
2,209,896
3,587,021

59,260
1,865,545
3,182,148

81,349
1,591,950
2,942,706

95,526
1,458,476
2,844,756

51,000
32,663,975
49,182,963

341.95
341.84

288.63
288.36

258.53
257.85

209.21
207.17

145.04
143.20

124.71
123.03

341.95
341.84
83.33

6,780
4,567

288.63
288.36
66.67

4,780
3,460

258.53
257.85
43.33

3,880
3,273

209.21
207.17
33.33

4,140
2,607

145.04
143.20
20.00

3,500
2,413

127.53
125.80
16.67

3,553
2,100

1,331,542
118,499

1,330,761
115,583

1,328,048
108,257

1,317,974
102,567

1,315,074
97,802

1,313,940
93,620

2.47
2.47

2.47
2.47
1.48

55.80
39.57

Notes:
1. U.S. dollar amounts are translated from yen at the rate of U.S.$1 = JPY81, the approximate exchange rate on the Tokyo Foreign Exchange Market as of

December 30, 2010.

2. The Company made a three-for-two stock split on July 1, 2006. The average number of common shares and the per share data for the periods prior to the stock split

have been adjusted to reﬂ ect the stock split.

CANON ANNUAL REPORT 2010

CONSOLIDATED BALANCE SHEETS
CANON INC. AND SUBSIDIARIES

ASSETS
Current assets:
Cash and cash equivalents (Note 1)
Short-term investments (Note 3)
Trade receivables, net (Note 4)

Inventories (Note 5)

Prepaid expenses and other current assets (Notes 7,13 and 19)

Total current assets

Noncurrent receivables (Note 20)
Investments (Note 3)
Property, plant and equipment, net (Notes 6 and 7)
Intangible assets, net (Note 9)
Other assets (Notes 7, 9, 12 and 13)

Total assets

LIABILITIES AND EQUITY
Current liabilities:
Short-term loans and current portion of long-term debt (Note 10)
Trade payables (Note 11)
Accrued income taxes (Note 13)
Accrued expenses (Notes 12 and 20)
Other current liabilities (Notes 6, 13 and 19)

Total current liabilities

Long-term debt, excluding current installments (Note 10)
Accrued pension and severance cost (Note 12)
Other noncurrent liabilities (Note 13)

Total liabilities

Commitments and contingent liabilities (Note 20)
Equity:
Canon Inc. stockholders’ equity:
Common stock

Authorized 3,000,000,000 shares;
issued 1,333,763,464 shares in 2010 and in 2009 (Note 14)

Additional paid-in capital (Note 14)
Legal reserve (Note 15)
Retained earnings (Note 15)
Accumulated other comprehensive income (loss) (Note 16)
Treasury stock, at cost; 105,295,975 shares in 2010 and
99,288,001 shares in 2009
Total Canon Inc. stockholders’ equity

Noncontrolling interests

Total equity
Total liabilities and equity

See accompanying Notes to Consolidated Financial Statements.

DECEMBER 31, 2010 AND 2009

Millions of yen

2010

2009

¥ 840,579
96,815
557,504
384,777
250,754
2,130,429
16,771
81,529
1,201,968
153,021
400,102
¥3,983,820

7,200
383,251
72,482
299,710
134,298
896,941
4,131
197,609
75,502
1,174,183

¥ 795,034
19,089
556,572
373,241
273,843
2,017,779
14,936
114,066
1,269,785
117,396
313,595
¥3,847,557

4,869
339,113
50,105
274,300
115,303
783,690
4,912
115,904
63,651
968,157

Thousands of
U.S. dollars (Note 2)
2010

$10,377,519
1,195,247
6,882,765
4,750,333
3,095,729
26,301,593
207,049
1,006,531
14,839,111
1,889,148
4,939,531
$49,182,963

88,889
4,731,494
894,840
3,700,123
1,658,000
11,073,346
51,000
2,439,617
932,123
14,496,086

174,762
400,425
57,930
2,965,237
(390,459)

(562,113)
2,645,782
163,855
2,809,637
¥3,983,820

174,762
404,293
54,687
2,871,437
(260,818)

(556,252)
2,688,109
191,291
2,879,400
¥3,847,557

2,157,556
4,943,518
715,185
36,607,864
(4,820,481)

(6,939,667)
32,663,975
2,022,902
34,686,877
$49,182,963

CANON ANNUAL REPORT 2010

CONSOLIDATED STATEMENTS OF INCOME
CANON INC. AND SUBSIDIARIES

YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008

Net sales
Cost of sales (Notes 6, 9, 12 and 20)
Gross proﬁ t
Operating expenses (Notes 1, 6 ,9, 12, 17 and 20):
Selling, general and administrative expenses
Research and development expenses

Operating proﬁ t
Other income (deductions):

Interest and dividend income
Interest expense

Other, net (Notes 1, 3, 19 and 22)

Income before income taxes

Income taxes (Note 13)

Consolidated net income

2010
¥3,706,901
1,923,813
1,783,088

1,079,719
315,817
1,395,536
387,552

6,022
(1,931)
1,220
5,311
392,863

140,160
252,703

Millions of yen
2009
¥3,209,201
1,781,808
1,427,393

905,738
304,600
1,210,338
217,055

5,202
(336)
(2,566)
2,300
219,355

84,122
135,233

2008
¥4,094,161
2,156,153
1,938,008

1,067,909
374,025
1,441,934
496,074

19,442
(837)
(33,532)
(14,927)
481,147

160,788
320,359

Thousands of
U.S. dollars (Note 2)
2010
$45,764,210
23,750,778
22,013,432

13,329,864
3,898,975
17,228,839
4,784,593

74,346
(23,840)
15,061
65,567
4,850,160

1,730,370
3,119,790

Less: Net income attributable to noncontrolling interests

Net income attributable to Canon Inc.

6,100
¥ 246,603

3,586
¥ 131,647

11,211
¥ 309,148

75,309
$ 3,044,481

Yen

U.S. dollars (Note 2)

Net income attributable to Canon Inc. stockholders
per share (Note 18):
Basic
Diluted
Cash dividends per share

See accompanying Notes to Consolidated Financial Statements.

199.71
199.70
120.00

106.64
106.64
110.00

246.21
246.20
110.00

2.47
2.47
1.48

CANON ANNUAL REPORT 2010

CONSOLIDATED STATEMENTS OF EQUITY
CANON INC. AND SUBSIDIARIES

Common
stock

Additional
paid-in
capital

Legal
reserve

Retained
earnings

Millions of yen

Accumulated
other
comprehensive
income (loss)

Treasury
stock

Total
Canon Inc.
stockholders’
equity

Noncontrolling
interests

Total
equity

Balance at December 31, 2007

¥174,698

¥402,991

¥46,017

¥2,720,146

¥ 34,670

¥(456,186)

¥2,922,336

¥222,870

¥3,145,206

Conversion of convertible debt
Equity transactions with noncontrolling
interests and other

Dividends paid to Canon Inc. stockholders

Dividends paid to noncontrolling interests

Transfer to legal reserve

Comprehensive income (loss):

Net income
Other comprehensive income (loss),
net of tax (Note 16):

Foreign currency translation
adjustments
Net unrealized gains and losses
on securities
Net gains and losses on derivative
instruments

Pension liability adjustments

Total comprehensive income (loss)

Repurchase of treasury stock, net

Balance at December 31, 2008
Equity transactions with noncontrolling
interests and other

Dividends paid to Canon Inc. stockholders

Dividends paid to noncontrolling interests

Transfer to legal reserve

Comprehensive income:

Net income

Other comprehensive income (loss),
net of tax (Note 16):

Foreign currency translation
adjustments
Net unrealized gains and losses
on securities
Net gains and losses on derivative
instruments

Pension liability adjustments

Total comprehensive income

Repurchase of treasury stock, net

Balance at December 31, 2009

Acquisition of subsidiaries

Equity transactions with noncontrolling
interests and other

Dividends paid to Canon Inc. stockholders

Dividends paid to noncontrolling interests

Transfer to legal reserve

Comprehensive income (loss):

Net income

Other comprehensive income (loss),
net of tax (Note 16):

Foreign currency translation
adjustments
Net unrealized gains and losses
on securities
Net gains and losses on derivative
instruments

Pension liability adjustments

Total comprehensive income (loss)

Repurchase of treasury stock, net

761

(145,024)

7,689

(7,689)

127

761

(26,218)

(145,024)

—

(5,123)

127

(25,457)

(145,024)

(5,123)

—

309,148

11,211

320,359

(258,764)

(1,911)

(260,675)

(5,152)

2,342

(65,916)

(25)

(5)

174,762

403,790

53,706

2,876,576

(292,820)

(100,036)

(556,222)

503

(135,793)

981

(981)

(5,152)

(690)

(5,842)

2,342

(65,916)

(18,342)

(100,066)

—

(8,949)

(339)

2,342

(74,865)

(18,681)

(100,066)

2,659,792

191,190

2,850,982

503

(1,376)

(135,793)

—

(3,326)

(873)

(135,793)

(3,326)

—

131,647

3,586

135,233

33,340

2,150

(1,422)

(2,066)

(12)

(30)

33,340

2,150

(1,422)

(2,066)

163,649

(42)

174,762

404,293

54,687

2,871,437

(260,818)

(556,252)

2,688,109

(1)

1,121

4,803

33,370

2,217

(1,423)

(945)

168,452

(42)

191,291

19,168

2,879,400

19,168

(3,787)

(13,453)

(136,103)

3,243

(3,243)

(680)

55,250

37,330

(43,214)

(5,884)

(136,103)

(2,827)

—

246,603

6,100

252,703

(122,667)

(4,251)

(126,918)

(222)

833

(6,905)

(222)

833

(66)

(6,905)

(2,422)

(146)

767

(9,327)

117,642

(563)

117,079

(81)

(4)

(61,111)

(61,196)

Balance at December 31, 2010

¥174,762

¥400,425

¥57,930

¥2,965,237 ¥ (390,459)

¥(562,113)

¥2,645,782

¥163,855

¥2,809,637

CANON ANNUAL REPORT 2010

Common
stock

Additional
paid-in
capital

Legal
reserve

Retained
earnings

Accumulated
other
comprehensive
income (loss)

Treasury
stock

Total
Canon Inc.
stockholders’
equity

Noncontrolling
interests

Total
equity

Thousands of U.S. dollars (Note 2)

Balance at December 31, 2009

$2,157,556

$4,991,272

$675,148

$35,449,840

$ (3,219,975)

$(6,867,310)

$33,186,531

$2,361,617

$35,548,148

Acquisition of subsidiaries

Equity transactions with noncontrolling
interests and other

Dividends paid to Canon Inc. stockholders

Dividends paid to noncontrolling interests

Transfer to legal reserve

Comprehensive income (loss):

Net income

Other comprehensive income (loss),
net of tax (Note 16):

Foreign currency translation
adjustments
Net unrealized gains and losses
on securities
Net gains and losses on derivative
instruments

Pension liability adjustments

Total comprehensive income (loss)

Repurchase of treasury stock, net

236,642

(46,754)

(166,087)

(8,395)

682,100

460,864

(533,506)

(72,642)

(1,680,284)

40,037

(40,037)

(34,901)

—

3,044,481

75,309

3,119,790

(1,514,407)

(52,481)

(1,566,888)

(2,741)

10,284

(85,247)

(2,741)

938

(1,803)

10,284

(815)

9,469

(85,247)

(29,901)

(115,148)

1,452,370

(6,950)

1,445,420

(1,000)

(49)

(754,457)

(755,506)

Balance at December 31, 2010

$2,157,556 $4,943,518 $715,185 $36,607,864 $(4,820,481) $(6,939,667) $32,663,975 $2,022,902 $34,686,877

See accompanying Notes to Consolidated Financial Statements.

68
68

CANON ANNUAL REPORT 2010
CANON ANNUAL REPORT 2010

CONSOLIDATED STATEMENTS OF CASH FLOWS
CANON INC. AND SUBSIDIARIES

Cash ﬂ ows from operating activities:
Consolidated net income
Adjustments to reconcile consolidated net income to
net cash provided by operating activities:
Depreciation and amortization
Loss on disposal of property, plant and equipment

Impairment loss of ﬁ xed assets (Note 6)
Impairment loss of investments

Equity in (earnings) losses of afﬁ liated companies
Deferred income taxes

(Increase) decrease in trade receivables
(Increase) decrease in inventories
Increase (decrease) in trade payables
Increase (decrease) in accrued income taxes
Increase (decrease) in accrued expenses
Increase (decrease) in accrued (prepaid) pension and
severance cost

Other, net

Net cash provided by operating activities

Cash ﬂ ows from investing activities:
Purchases of ﬁ xed assets (Note 6)
Proceeds from sale of ﬁ xed assets (Note 6)
Purchases of available-for-sale securities

Proceeds from sale and maturity of
available-for-sale securities

Proceeds from maturity of held-to-maturity securities

(Increase) decrease in time deposits, net

Acquisitions of subsidiaries, net of cash acquired
Purchases of other investments
Other, net

Net cash used in investing activities

Cash ﬂ ows from ﬁ nancing activities:
Proceeds from issuance of long-term debt
Repayments of long-term debt
Decrease in short-term loans, net
Dividends paid
Repurchases of treasury stock, net
Other, net

Net cash used in ﬁ nancing activities

Effect of exchange rate changes on cash and
cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

Supplemental disclosure for cash ﬂ ow information
(Note 23):

Cash paid during the year for:

Interest
Income taxes

See accompanying Notes to Consolidated Financial Statements.

YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008

2010

Millions of yen
2009

2008

Thousands of
U.S. dollars (Note 2)
2010

¥252,703

¥135,233

¥320,359

$ 3,119,790

276,193
21,120
1,288
23,330
(10,471)
29,381
(6,671)
(17,532)
115,726
25,228
77

4,147
29,894
744,413

(199,152)
3,303
(10,891)

3,910
—
(80,904)
(55,686)
(1,955)
(758)
(342,133)

5,902
(5,739)
(74,933)
(136,103)
(61,196)
(7,828)
(279,897)

315,393
8,215
15,466
2,398
12,649
20,712
48,244
143,580
(76,843)
(21,023)
(9,827)

4,765
12,273
611,235

(327,983)
8,893
(3,253)

2,460
—
(11,345)
(2,979)
(37,981)
1,944
(370,244)

3,361
(6,282)
(280)
(135,793)
(42)
(3,343)
(142,379)

341,337
11,811
13,503
10,568
20,047
(32,497)
83,521
49,547
(36,719)
(77,340)
(30,694)

(12,128)
(44,631)
616,684

(428,168)
7,453
(7,307)

4,320
10,000
2,892
(5,999)
(45,473)
(10,198)
(472,480)

6,841
(15,397)
(2,643)
(145,024)
(100,066)
(21,276)
(277,565)

3,409,790
260,741
15,901
288,025
(129,272)
362,728
(82,358)
(216,444)
1,428,716
311,457
951

51,198
369,061
9,190,284

(2,458,667)
40,778
(134,457)

48,272
—
(998,815)
(687,481)
(24,136)
(9,358)
(4,223,864)

72,864
(70,852)
(925,099)
(1,680,284)
(755,506)
(96,642)
(3,455,519)

(76,838)
45,545
795,034
¥840,579

17,226
115,838
679,196
¥795,034

(131,906)
(265,267)
944,463
¥679,196

(948,617)
562,284
9,815,235
$10,377,519

¥ 1,924
80,212

384
82,906

901
263,392

23,753
990,272

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CANON INC. AND SUBSIDIARIES

CANON ANNUAL REPORT 2010

1. Basis of Presentation and Signiﬁ cant Accounting Policies
(a) Description of Business
Canon Inc. (the “Company”) and subsidiaries (collectively
“Canon”) is one of the world’s leading manufacturers in such
ﬁ elds as ofﬁ ce products, consumer products and industry and
other products. Ofﬁ ce products consist mainly of network digi-
tal multifunction devices (“MFDs”), copying machines, laser
printers, large format inkjet printers and digital production
printers. Consumer products consist mainly of digital single-
lens reﬂ ex (“SLR”) cameras, compact digital cameras, inter-
changeable lenses, digital video camcorders, inkjet
multifunction peripherals, single function inkjet printers, image
scanners and broadcasting equipment. Industry and other
products consist mainly of semiconductor lithography equip-
ment, lithography equipment for liquid crystal display (“LCD”)
panels, and medical equipment. Canon’s consolidated net sales
for the years ended December 31, 2010, 2009 and 2008 were
distributed as follows: the Ofﬁ ce Business Unit 54%, 51% and
55%, the Consumer Business Unit 38%, 41% and 35%, the
Industry and Others Business Unit 12%, 11% and 13%, and
elimination between segments 4%, 3% and 3%, respectively.
These percentages were computed by dividing segment net
sales, including intersegment sales, by consolidated net sales,
based on the segment operating results described in Note 24.
Sales are made principally under the Canon brand name, almost
entirely through sales subsidiaries. These subsidiaries are responsi-
ble for marketing and distribution, and primarily sell to retail dealers
in their geographic area. Approximately 81%, 78% and 79% of con-
solidated net sales for the years ended December 31, 2010, 2009
and 2008 were generated outside Japan, with 28%, 28% and 28% in
the Americas, 32%, 31% and 33% in Europe, and 21%, 19% and 18%
in Asia and Oceania, respectively.
Canon sells laser printers on an OEM basis to Hewlett-
Packard Company; such sales constituted approximately 20%,
20% and 23% of consolidated net sales for the years ended
December 31, 2010, 2009 and 2008, respectively, and are
included in the Ofﬁ ce Business Unit.
Canon’s manufacturing operations are conducted primarily at 26
plants in Japan and 19 overseas plants which are located in coun-
tries or regions such as the United States, Germany, France,
Netherlands, Taiwan, China, Malaysia, Thailand and Vietnam.

(b) Basis of Presentation
The Company and its domestic subsidiaries maintain their
books of account in conformity with ﬁ nancial accounting stan-
dards of Japan. Foreign subsidiaries maintain their books of
account in conformity with ﬁ nancial accounting standards of
the countries of their domicile.
Certain adjustments and reclassiﬁ cations have been incorpo-
rated in the accompanying consolidated ﬁ nancial statements to
conform with U.S. generally accepted accounting principles
(“GAAP”). These adjustments were not recorded in the statuto-
ry books of account.

interest entities where the Company or its consolidated subsid-
iaries are the primary beneﬁ ciaries. All signiﬁ cant intercompany
balances and transactions have been eliminated.

(d) Use of Estimates
The preparation of the consolidated ﬁ nancial statements in
conformity with U.S. GAAP requires management to make esti-
mates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the consolidated ﬁ nancial state-
ments and the reported amounts of revenues and expenses
during the period. Signiﬁ cant estimates and assumptions are
reﬂ ected in valuation and disclosure of revenue recognition,
allowance for doubtful receivables, valuation of inventories,
impairment of long-lived assets, environmental liabilities, valua-
tion of deferred tax assets, uncertain tax positions and employ-
ee retirement and severance beneﬁ t obligations. Actual results
could differ materially from those estimates.

(e) Translation of Foreign Currencies
Assets and liabilities of the Company’s subsidiaries located out-
side Japan with functional currencies other than Japanese yen
are translated into Japanese yen at the rates of exchange in
effect at the balance sheet date. Income and expense items are
translated at the average exchange rates prevailing during the
year. Gains and losses resulting from translation of ﬁ nancial
statements are excluded from earnings and are reported in
other comprehensive income (loss).
Gains and losses resulting from foreign currency transac-
tions, including foreign exchange contracts, and translation of
assets and liabilities denominated in foreign currencies are
included in other income (deductions) in the consolidated
statements of income. Foreign currency exchange gains and
losses were net gains of ¥3,089 million ($38,136 thousand) and
¥1,842 million for the years ended December 31, 2010 and
2009, respectively, and was a net loss of ¥11,212 million for the
year ended December 31, 2008.

(f) Cash Equivalents
All highly liquid investments acquired with original maturities of
three months or less are considered to be cash equivalents.
Certain debt securities with original maturities of less than
three months classiﬁ ed as available-for-sale securities of
¥249,907 million ($3,085,272 thousand) and ¥184,856 million at
December 31, 2010 and 2009, respectively, are included in cash
and cash equivalents in the consolidated balance sheets.
Additionally, certain debt securities with original maturities of
less than three months classiﬁ ed as held-to-maturity securities
of ¥1,000 million ($12,346 thousand) and ¥999 million at
December 31, 2010 and 2009, respectively, are also included in
cash and cash equivalents. Fair value for these securities
approximates their cost.

(c) Principles of Consolidation
The consolidated ﬁ nancial statements include the accounts of
the Company, its majority owned subsidiaries and those variable

(g) Investments
Investments consist primarily of time deposits with original
maturities of more than three months, debt and marketable

CANON ANNUAL REPORT 2010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES

equity securities, investments in afﬁ liated companies and non-
marketable equity securities. Canon reports investments with
maturities of less than one year as short-term investments.
Canon classiﬁ es investments in debt and marketable equity
securities as available-for-sale or held-to-maturity securities.
Canon does not hold any trading securities, which are bought
and held primarily for the purpose of sale in the near term.
Available-for-sale securities are recorded at fair value. Fair
value is determined based on quoted market prices, projected
discounted cash ﬂ ows or other valuation techniques as appro-
priate. Unrealized holding gains and losses, net of the related
tax effect, are reported as a separate component of other com-
prehensive income (loss) until realized. Held-to-maturity securi-
ties are recorded at amortized cost, adjusted for amortization
of premiums and accretion of discounts.
Available-for-sale and held-to-maturity securities are regular-
ly reviewed for other-than-temporary declines in the carrying
amount based on criteria that include the length of time and
the extent to which the market value has been less than cost,
the ﬁ nancial condition and near-term prospects of the issuer
and Canon’s intent and ability to retain the investment for a
period of time sufﬁ cient to allow for any anticipated recovery in
market value. For debt securities for which the declines are
deemed to be other-than-temporary and there is no intent to
sell, impairments are separated into the amount related to
credit loss, which is recognized in earnings, and the amount
related to all other factors, which is recognized in other com-
prehensive income (loss). For debt securities for which the
declines are deemed to be other-than-temporary and there is
an intent to sell, impairments in their entirety are recognized in
earnings. For equity securities for which the declines are
deemed to be other-than-temporary, impairments in their
entirety are recognized in earnings. Canon recognizes an
impairment loss to the extent by which the cost basis of the
investment exceeds the fair value of the investment.
Realized gains and losses are determined by the average
cost method and reﬂ ected in earnings.

Investments in afﬁ liated companies over which Canon has
the ability to exercise signiﬁ cant inﬂ uence, but does not hold a
controlling ﬁ nancial interest, are accounted for by the equity
method.
Non-marketable equity securities in companies over which
Canon does not have the ability to exercise signiﬁ cant inﬂ uence
are stated at cost and reviewed periodically for impairment.

(h) Allowance for Doubtful Receivables
Allowance for doubtful trade and ﬁ nance receivables is main-
tained for all customers based on a combination of factors,
including aging analysis, macroeconomic conditions and histor-
ical experience. An additional reserve for individual accounts is
recorded when Canon becomes aware of a customer’s inability
to meet its ﬁ nancial obligations, such as in the case of bank-
ruptcy ﬁ lings. If circumstances related to customers change,
estimates of the recoverability of receivables would be further
adjusted. When all collection options are exhausted including
legal recourse, the accounts or portions thereof are deemed to
be uncollectable and charged against the allowance.

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

(j) Impairment of Long-Lived Assets
Long-lived assets, such as property, plant and equipment, and
acquired intangibles subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indi-
cate that the carrying amount of an asset may not be recover-
able. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of the asset and the
estimated undiscounted future cash ﬂ ows expected to be gen-
erated by the asset. If the carrying amount of the asset exceeds
its estimated undiscounted future cash ﬂ ows, an impairment
charge is recognized in the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets
to be disposed of by sale are reported at the lower of the carry-
ing amount or fair value less costs to sell, and are no longer
depreciated.

(k) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation
is calculated principally by the declining-balance method,
except for certain assets which are depreciated by the straight-
line method over the estimated useful lives of the assets.
The depreciation period ranges from 3 years to 60 years for
buildings and 1 year to 20 years for machinery and equipment.
Assets leased to others under operating leases are stated at
cost and depreciated to the estimated residual value of the
assets by the straight-line method over the period ranging from
2 years to 5 years.

(l) Goodwill and Other Intangible Assets
Goodwill and other intangible assets with indeﬁ nite useful lives
are not amortized, but are instead tested for impairment annu-
ally in the fourth quarter of each year, or more frequently if indi-
cators of potential impairment exist. Canon performs its
impairment test of goodwill using the two-step approach at the
reporting unit level, which is one level below the operating seg-
ment level. All goodwill is assigned to the reporting unit or units
that beneﬁ t from the synergies arising from each business
combination. If the carrying amount assigned to the reporting
unit exceeds the fair value of the reporting unit, Canon per-
forms the second step to measure an impairment charge in the
amount by which the carrying amount of a reporting unit’s
goodwill exceeds its implied fair value. Intangible assets with
ﬁ nite useful lives consist primarily of software, license fees, pat-
ented technologies and customer relationships. Software and
license fees are amortized using the straight-line method over
the estimated useful lives, which range from 3 years to 5 years
for software and 5 years to 10 years for license fees. Patented
technologies are amortized using the straight-line method prin-
cipally over the estimated useful life of 3 years. Customer rela-
tionships are amortized principally using the declining-balance
method over the estimated useful life of 5 years. Certain costs

CANON ANNUAL REPORT 2010

incurred in connection with developing or obtaining internal
use software are capitalized. These costs consist primarily of
payments made to third parties and the salaries of employees
working on such software development. Costs incurred in con-
nection with developing internal use software are capitalized at
the application development stage. In addition, Canon develops
or obtains certain software to be sold where related costs are
capitalized after establishment of technological feasibility.

(m) Environmental Liabilities
Liabilities for environmental remediation and other environ-
mental costs are accrued when environmental assessments or
remedial efforts are probable and the costs can be reasonably
estimated. Such liabilities are adjusted as further information
develops or circumstances change. Costs of future obligations
are not discounted to their present values.

(n) Income Taxes
Deferred tax assets and liabilities are recognized for the esti-
mated future tax consequences attributable to differences
between the ﬁ nancial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operat-
ing loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date. Canon records a valuation allowance to reduce the deferred
tax assets to the amount that is more likely than not realizable.
Canon recognizes the ﬁ nancial statement effects of tax posi-
tions when it is more likely than not, based on the technical
merits, that the tax positions will be sustained upon examina-
tion by the tax authorities. Beneﬁ ts from tax positions that meet
the more-likely-than-not recognition threshold are measured at
the largest amount of beneﬁ t that is greater than 50% likely of
being realized upon settlement. Interest and penalties accrued
related to unrecognized tax beneﬁ ts are included in income
taxes in the consolidated statements of income.

(o) Stock-Based Compensation
Canon measures stock-based compensation cost at the grant
date, based on the fair value of the award, and recognizes the
cost on a straight-line basis over the requisite service period,
which is the vesting period.

(p) Net Income Attributable to Canon Inc. Stockholders

per Share

Basic net income attributable to Canon Inc. stockholders per
share is computed by dividing net income attributable to Canon
Inc. by the weighted-average number of common shares out-
standing during each year. Diluted net income attributable to
Canon Inc. stockholders per share includes the effect from
potential issuances of common stock based on the assump-
tions that all convertible debentures were converted into com-
mon stock and all stock options were exercised.

(q) Revenue Recognition
Canon generates revenue principally through the sale of ofﬁ ce
and consumer products, equipment, supplies, and related ser-
vices under separate contractual arrangements. Canon recog-
nizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred and title and risk of loss have
been transferred to the customer or services have been ren-
dered, the sales price is ﬁ xed or determinable, and collectibility
is probable.
Revenue from sales of ofﬁ ce products, such as ofﬁ ce net-
work digital MFDs and laser printers, and consumer products,
such as digital cameras and inkjet multifunction peripherals, is
recognized upon shipment or delivery, depending upon when
title and risk of loss transfer to the customer.
Revenue from sales of optical equipment, such as semicon-
ductor lithography equipment and LCD lithography equipment
that are sold with customer acceptance provisions related to
their functionality, is recognized when the equipment is
installed at the customer site and the speciﬁ c criteria of the
equipment functionality are successfully tested and demon-
strated by Canon. Service revenue is derived primarily from
separately priced product maintenance contracts on equip-
ment sold to customers and is measured at the stated amount
of the contract and recognized as services are provided.
Canon also offers separately priced product maintenance con-
tracts for most ofﬁ ce products, for which the customer typically
pays a stated base service fee plus a variable amount based on
usage. Revenue from these service maintenance contracts is
measured at the stated amount of the contract and recognized
as services are provided and variable amounts are earned.
Revenue from the sale of equipment under sales-type leases
is recognized at the inception of the lease. Income on sales-
type leases and direct-ﬁ nancing leases is recognized over the
life of each respective lease using the interest method. Leases
not qualifying as sales-type leases or direct-ﬁ nancing leases are
accounted for as operating leases and related revenue is rec-
ognized ratably over the lease term. When equipment leases
are bundled with product maintenance contracts, revenue is
ﬁ rst allocated considering the relative fair value of the lease
and non-lease deliverables based upon the estimated relative
fair values of each element. Lease deliverables generally
include equipment, ﬁ nancing and executory costs, while non-
lease deliverables generally consist of product maintenance
contracts and supplies.
For all other arrangements with multiple elements, Canon
allocates revenue to each element based on its relative fair
value if such element meets the criteria for treatment as a sep-
arate unit of accounting. Otherwise, revenue is deferred until
the undelivered elements are fulﬁ lled and accounted for as a
single unit of accounting.
Canon records estimated reductions to sales at the time of
sale for sales incentive programs including product discounts,
customer promotions and volume-based rebates. Estimated
reductions in sales are based upon historical trends and other
known factors at the time of sale. In addition, Canon provides

CANON ANNUAL REPORT 2010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES

price protection to certain resellers of its products, and records
reductions to sales for the estimated impact of price protection
obligations when announced.
Estimated product warranty costs are recorded at the time
revenue is recognized and are included in selling, general and
administrative expenses in the consolidated statements of
income. Estimates for accrued product warranty costs are
based on historical experience, and are affected by ongoing
product failure rates, speciﬁ c product class failures outside of
the baseline experience, material usage and service delivery
costs incurred in correcting a product failure.
Taxes collected from customers and remitted to governmen-
tal authorities are excluded from revenues in the consolidated
statements of income.

(r) Research and Development Costs
Research and development costs are expensed as incurred.

(s) Advertising Costs
Advertising costs are expensed as incurred. Advertising
expenses were ¥94,794 million ($1,170,296 thousand), ¥78,009
million and ¥112,810 million for the years ended December 31,
2010, 2009 and 2008, respectively.

(t) Shipping and Handling Costs
Shipping and handling costs totaled ¥56,306 million ($695,136
thousand), ¥45,966 million and ¥62,128 million for the years
ended December 31, 2010, 2009 and 2008, respectively, and are
included in selling, general and administrative expenses in the
consolidated statements of income.

(u) Derivative Financial Instruments
All derivatives are recognized at fair value and are included in
prepaid expenses and other current assets, or other current lia-
bilities in the consolidated balance sheets.
Canon uses and designates certain derivatives as a hedge of
a forecasted transaction or the variability of cash ﬂ ows to be
received or paid related to a recognized asset or liability (“cash
ﬂ ow” hedge). Canon formally documents all relationships
between hedging instruments and hedged items, as well as its
risk-management objective and strategy for undertaking vari-
ous hedge transactions. Canon also formally assesses, both at
the hedge’s inception and on an ongoing basis, whether the
derivatives that are used in hedging transactions are highly
effective in offsetting changes in cash ﬂ ows of hedged items.
When it is determined that a derivative is not highly effective as
a hedge or that it has ceased to be a highly effective hedge,
Canon discontinues hedge accounting prospectively. Changes
in the fair value of a derivative that is designated and qualiﬁ es
as a cash ﬂ ow hedge are recorded in other comprehensive
income (loss), until earnings are affected by the variability in
cash ﬂ ows of the hedged item. Gains and losses from hedging
ineffectiveness are included in other income (deductions).
Gains and losses related to the components of hedging instru-
ments excluded from the assessment of hedge effectiveness
are included in other income (deductions).

Canon also uses certain derivative ﬁ nancial instruments
which are not designated as hedges. The changes in fair values
of these derivative ﬁ nancial instruments are immediately
recorded in earnings.
Canon classiﬁ es cash ﬂ ows from derivatives as cash ﬂ ows from
operating activities in the consolidated statements of cash ﬂ ows.

(v) Guarantees
Canon recognizes, at the inception of a guarantee, a liability for the
fair value of the obligation it has undertaken in issuing guarantees.

(w) Recently Issued Accounting Guidance
In October 2009, the FASB issued new accounting guidance for
revenue recognition under multiple-deliverable arrangements.
This guidance modiﬁ es the criteria for separating consideration
under multiple-deliverable arrangements and requires alloca-
tion of the overall consideration to each deliverable using the
estimated selling price in the absence of vendor-speciﬁ c objec-
tive evidence or third-party evidence of selling price for deliver-
ables. As a result, the residual method of allocating arrangement
consideration will no longer be permitted. The guidance also
requires additional disclosures about how a vendor allocates
revenue in its arrangements and about the signiﬁ cant judg-
ments made and their impact on revenue recognition. This
guidance is effective for ﬁ scal years beginning on or after June
15, 2010 and is required to be adopted by Canon no later than
the ﬁ rst quarter beginning January 1, 2011 (with early adoption
permitted). The provisions are effective prospectively for reve-
nue arrangements entered into or materially modiﬁ ed after the
effective date, or retrospectively for all prior periods. Canon
does not expect the adoption of this guidance to have a materi-
al impact on Canon’s consolidated ﬁ nancial statements.

In October 2009, the FASB issued new accounting guidance for

software revenue recognition. This guidance modiﬁ es the scope
of the software revenue recognition guidance to exclude from its
requirements non-software components of tangible products
and software components of tangible products that are sold,
licensed, or leased with tangible products when the software
components and non-software components of the tangible
product function together to deliver the tangible product’s
essential functionality. This guidance is effective for ﬁ scal years
beginning on or after June 15, 2010 and is required to be adopt-
ed by Canon no later than the ﬁ rst quarter beginning January 1,
2011 (with early adoption permitted) using the same effective
date and the same transition method used to adopt the guid-
ance for revenue recognition under multiple-deliverable
arrangements. Canon does not expect the adoption of this
guidance to have a material impact on Canon’s consolidated
ﬁ nancial statements.

(x) Reclassiﬁ cations
Certain reclassiﬁ cations have been made to the prior years’
consolidated statements of cash ﬂ ows to conform to the cur-
rent year presentation.

CANON ANNUAL REPORT 2010

2. Basis of Financial Statement Translation
The consolidated ﬁ nancial statements presented herein are
expressed in Japanese yen and, solely for the convenience of
the reader, have been translated into United States dollars at
the rate of ¥81 = U.S.$1, the approximate exchange rate

prevailing on the Tokyo Foreign Exchange Market on December
30, 2010. This translation should not be construed as a repre-
sentation that the amounts shown could be converted into
United States dollars at such rate.

3. Investments
The cost, gross unrealized holding gains, gross unrealized holding losses and fair value for available-for-sale securities included in
short-term investments and investments by major security type at December 31, 2010 and 2009 were as follows:

December 31

Millions of yen

2010: Current:

Government bonds
Corporate bonds

Noncurrent:
Government bonds
Corporate bonds
Fund trusts
Equity securities

Millions of yen

2009:

Current:
Government bonds
Noncurrent:
Government bonds
Corporate bonds
Fund trusts
Equity securities

Gross
unrealized
holding
gains

Gross
unrealized
holding
losses

¥ —
—
¥ —

¥ —
42
20
5,768
¥5,830

¥ —
—
¥ —

¥ 22
65
—
654
¥741

Fair value

1
1,000
¥ 1,001

161
994
1,798
23,402
¥26,355

Cost

1
1,000
¥ 1,001

183
1,017
1,778
18,288
¥21,266

Gross
unrealized
holding
gains

Gross
unrealized
holding
losses

Cost

Fair value

222

¥ —

222

225
1,397
2,275
11,932
¥15,829

¥ —
27
300
7,295
¥7,622

21
55
7
1,501
¥1,584

204
1,369
2,568
17,726
¥21,867

CANON ANNUAL REPORT 2010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES

December 31

Thousands of U.S. dollars

2010: Current:

Government bonds
Corporate bonds

Noncurrent:
Government bonds
Corporate bonds
Fund trusts
Equity securities

Gross
unrealized
holding
gains

—
—
—

—
519
246
71,210
$71,975

Gross
unrealized
holding
losses

$ —
—
$ —

$ 272
802
—
8,074
$9,148

Fair value

12
12,346
$ 12,358

$ 1,987
12,272
22,197
288,914
$325,370

Cost

12
12,346
$ 12,358

$ 2,259
12,555
21,951
225,778
$262,543

Maturities of available-for-sale debt securities and fund trusts included in short-term investments and investments in the accom-
panying consolidated balance sheets were as follows at December 31, 2010:

Due within one year
Due after one year through ﬁ ve years
Due after ﬁ ve years through ten years

Millions of yen

Cost

¥1,001
952
2,026
¥3,979

Fair value

¥1,001
972
1,981
¥3,954

Thousands of
U.S. dollars

Cost

$12,358
11,753
25,012
$49,123

Fair value

$12,358
12,000
24,456
$48,814

Gross realized gains were ¥641 million ($7,914 thousand),
¥277 million and ¥116 million for the years ended December
31, 2010, 2009 and 2008, respectively. Gross realized losses,
including write-downs for impairments that were other than
temporary, were ¥1,961 million ($24,210 thousand), ¥2,482 mil-
lion and ¥7,868 million for the years ended December 31, 2010,
2009 and 2008, respectively.
At December 31, 2010, substantially all of the available-for-
sale securities with unrealized losses had been in a continuous
unrealized loss position for less than 12 months.
Time deposits with original maturities of more than three
months are ¥95,814 million ($1,182,889 thousand) and ¥18,852
million at December 31, 2010 and 2009, respectively, and are
included in short-term investments in the accompanying con-
solidated balance sheets.
Aggregate cost of non-marketable equity securities account-
ed for under the cost method totaled ¥26,475 million ($326,852

thousand) and ¥28,567 million at December 31, 2010 and 2009,
respectively. Investments with an aggregate cost of ¥24,053
million ($296,951 thousand) were not evaluated for impairment
because (a) Canon did not estimate the fair value of those
investments as it was not practicable to estimate the fair value
of the investments and (b) Canon did not identify any events or
changes in circumstances that might have had signiﬁ cant
adverse effects on the fair value of those investments.

Investments in afﬁ liated companies accounted for by the
equity method amounted to ¥26,817 million ($331,074 thou-
sand) and ¥61,595 million at December 31, 2010 and 2009,
respectively. Canon’s share of the net earnings (losses) in afﬁ li-
ated companies accounted for by the equity method, included
in other income (deductions), were earnings of ¥10,471 million
($129,272 thousand) for the year ended December 31, 2010,
and losses of ¥12,649 million and ¥20,047 million for the years
ended December 31, 2009 and 2008, respectively.

4. Trade Receivables
Trade receivables are summarized as follows:

December 31

Notes
Accounts

Less allowance for doubtful receivables

5. Inventories
Inventories are summarized as follows:

December 31

Finished goods
Work in process
Raw materials

CANON ANNUAL REPORT 2010

Millions of yen

2010

¥ 15,441
556,983
572,424
(14,920)
¥557,504

2009

¥ 13,037
554,878
567,915
(11,343)
¥556,572

Thousands of
U.S. dollars

2010

$ 190,630
6,876,333
7,066,963
(184,198)
$6,882,765

Millions of yen

2010

¥232,584
116,679
35,514
¥384,777

2009

¥228,161
129,824
15,256
¥373,241

Thousands of
U.S. dollars

2010

$2,871,407
1,440,482
438,444
$4,750,333

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

December 31

Land
Buildings
Machinery and equipment
Construction in progress

Less accumulated depreciation

Millions of yen

2010

2009

¥ 266,631
1,320,121
1,439,246
85,673
3,111,671
(1,909,703)
¥1,201,968

¥ 258,824
1,299,154
1,422,076
105,713
3,085,767
(1,815,982)
¥1,269,785

Thousands of
U.S. dollars

2010

$ 3,291,741
16,297,790
17,768,469
1,057,691
38,415,691
(23,576,580)
$14,839,111

CANON ANNUAL REPORT 2010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES

Depreciation expense for the years ended December 31, 2010,
2009 and 2008 was ¥232,327 million ($2,868,235 thousand),
¥277,399 million and ¥304,622 million, respectively.
Amounts due for purchases of property, plant and equipment
were ¥23,306 million ($287,728 thousand) and ¥29,030 million
at December 31, 2010 and 2009, respectively, and are included
in other current liabilities in the accompanying consolidated
balance sheets. Fixed assets presented in the consolidated
statements of cash ﬂ ows include property, plant and equipment
and intangible assets.
As a result of continued sluggish demand in the semiconduc-
tor manufacturing industry and diminished proﬁ tability of the
semiconductor lithography equipment business, Canon recog-
nized impairment losses related primarily to property, plant and
equipment of its semiconductor lithography equipment busi-
ness, which are included in the results of the Industry and

Others Business Unit for the year ended December 31, 2009.
Long-lived assets with a carrying amount of ¥15,390 million
were written down to their fair value of zero, which was esti-
mated using discounted future cash ﬂ ows expected to be gen-
erated over their remaining useful life. The impairment losses
were included in selling, general and administrative expenses
in the consolidated statement of income.
Canon also recognized impairment losses of ¥11,164 million
related primarily to property, plant and equipment of its semi-
conductor lithography equipment business, which are included
in the results of the Industry and Others Business Unit for the
year ended December 31, 2008, mainly as a result of declining
demand in the semiconductor manufacturing industry. The
impairment losses were estimated using discounted cash ﬂ ows
and included in selling, general and administrative expenses in
the consolidated statement of income.

7. Finance Receivables and Operating Leases
Finance receivables represent ﬁ nancing leases which consist of
sales-type leases and direct-ﬁ nancing leases resulting from the
marketing of Canon’s and complementary third-party products
primarily in foreign countries. These receivables typically have

terms ranging from 1 year to 8 years. The components of the
ﬁ nance receivables, which are included in prepaid expenses
and other current assets, and other assets in the accompany-
ing consolidated balance sheets, are as follows:

December 31

Total minimum lease payments receivable
Unguaranteed residual values
Executory costs
Unearned income

Less allowance for doubtful receivables

Less current portion

The activity in the allowance for credit losses is as follows:

Year ended December 31, 2010

Balance at beginning of year
Charge-offs
Provision
Other
Balance at end of year

Millions of yen

2010

¥215,925
11,120
(2,063)
(27,891)
197,091
(7,983)
189,108
(71,500)
¥117,608

2009

¥206,267
14,630
(1,973)
(26,994)
191,930
(9,023)
182,907
(65,146)
¥117,761

Millions of yen

¥9,023
(3,103)
1,995
68
¥7,983

Thousands of
U.S. dollars

2010

$2,665,741
137,284
(25,469)
(344,333)
2,433,223
(98,556)
2,334,667
(882,716)
$1,451,951

Thousands of
U.S. dollars

$111,395
(38,309)
24,630
840
$ 98,556

CANON ANNUAL REPORT 2010

Canon has policies in place to ensure that its products are sold
to customers with an appropriate credit history, and continu-
ously monitors its customers’ credit quality based on informa-
tion including length of period in arrears, macroeconomic
conditions, initiation of legal proceedings against customers
and bankruptcy ﬁ lings. The allowance for credit losses of
ﬁ nance receivables are evaluated collectively based on historical
experience of credit losses. An additional reserve for individual
accounts is recorded when Canon becomes aware of a cus-
tomer’s inability to meet its ﬁ nancial obligations, such as in the
case of bankruptcy ﬁ lings. Finance receivables which are past
due or individually evaluated for impairment at December 31,
2010 are not signiﬁ cant.

The cost of equipment leased to customers under operating
leases included in property, plant and equipment, net at
December 31, 2010 and 2009 was ¥63,239 million ($780,728
thousand) and ¥53,807 million, respectively. Accumulated
depreciation on equipment under operating leases at
December 31, 2010 and 2009 was ¥43,829 million ($541,099
thousand) and ¥39,992 million, respectively.
The following is a schedule by year of the future minimum
lease payments to be received under ﬁ nancing leases and non-
cancelable operating leases at December 31, 2010.

Year ending December 31:

Millions of yen

Thousands of U.S. dollars

2011
2012
2013
2014
2015
Thereafter

Financing leases

Operating leases

Financing leases

Operating leases

¥ 84,049
60,245
39,883
21,143
9,945
660
¥215,925

¥11,581
6,449
3,365
1,456
532
163
¥23,546

$1,037,642
743,765
492,383
261,025
122,778
8,148
$2,665,741

$142,975
79,617
41,543
17,975
6,568
2,013
$290,691

8. Acquisitions
In March 2010, Canon acquired 45.2% of the total outstanding
shares of Océ N.V. (“Océ”), which is listed on NYSE Euronext
Amsterdam, principally through a fully self-funded public cash
tender offer for consideration of ¥50,374 million ($621,901
thousand), in addition to the 22.9% interest Canon held before
the public cash tender offer. In addition, Canon acquired Océ’s
convertible cumulative ﬁ nancing preference shares represent-
ing 19.1% of the total outstanding shares of Océ for consider-
ation of ¥8,027 million ($99,099 thousand). As a result, Canon’s
aggregate interest represents 87.2% of the total outstanding
shares of Océ. The fair value of the 12.8% noncontrolling inter-
est in Océ of ¥18,245 million ($225,247 thousand) was mea-
sured based on the quoted price of Océ’s common stock on
the acquisition date.
The acquisition was accounted for using the acquisition
method. Prior to the March 2010 acquisition date, Canon
accounted for its 22.9% interest in Océ using the equity meth-
od. The acquisition-date fair value of the previous equity inter-
est of ¥25,508 million ($314,914 thousand) was remeasured

using the quoted price of Océ’s common stock on the acquisi-
tion date and included in the measurement of the total acquisi-
tion consideration. In connection with the acquisition, Canon
repaid ¥55,378 million ($683,679 thousand) of Océ’s existing
bank debt and ¥22,936 million ($283,160 thousand) of Océ’s
existing United States Private Placement notes, which are
included in decrease in short-term loans in the consolidated
statement of cash ﬂ ows.
Océ is engaged in research and development, manufacture
and sale of document management systems, printing systems
for professionals and high-speed, wide format digital printing
systems. Canon and Océ have complementary technologies
and products and would beneﬁ t from this strong business rela-
tionship. Amid the increasingly competitive printing industry,
Canon is further strengthening its business foundation in order
to solidify its position as one of the global leaders. Canon aims
to provide diversiﬁ ed solutions to its customers in the printing
industry by making Océ a consolidated subsidiary.

CANON ANNUAL REPORT 2010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at acquisition date.

Current assets
Property, plant and equipment
Intangible assets
Goodwill
Other noncurrent assets
Non-current assets
Total acquired assets
Total assumed liabilities
Net assets acquired

Millions of yen

¥122,248
51,156
56,297
77,253
42,658
227,364
349,612
247,458
¥102,154

Thousands of
U.S. dollars

$1,509,235
631,556
695,025
953,741
526,642
2,806,964
4,316,199
3,055,038
$1,261,161

Intangible assets acquired, which are subject to amortization,

consist of customer relationships of ¥32,747 million ($404,284
thousand), patented technologies of ¥11,316 million ($139,704
thousand), and other intangible assets of ¥12,234 million
($151,037 thousand). Canon has estimated the amortization
period for the customer relationships and patented technolo-
gies to be 5 years and 3 years, respectively. The weighted aver-
age amortization period for all intangible assets is approximately
4.4 years.
Goodwill recognized, which is assigned to the Ofﬁ ce Business
Unit for impairment testing, is attributable primarily to expected
synergies from combining operations of Océ and Canon. None of
the goodwill is expected to be deductible for income tax purposes.
The amount of net sales of Océ included in Canon’s consoli-
dated statement of income from the acquisition date for the

year ended December 31, 2010 was ¥246,518 million
($3,043,432 thousand).
The unaudited pro forma net sales as if Océ had been includ-
ed in Canon’s consolidated statements of income from the
beginning of the years ended December 31, 2010 and 2009
were ¥3,772,425 million ($46,573,148 thousand) and ¥3,554,316
million, respectively. Pro forma net income was not disclosed
because the impact on Canon’s consolidated statements of
income was not material.
Canon acquired businesses other than those described above
during the years ended December 31, 2010, 2009, and 2008 that
were not material to its consolidated ﬁ nancial statements.

9. Goodwill and Other Intangible Assets
Intangible assets developed or acquired during the year ended
December 31, 2010 totaled ¥94,474 million ($1,166,346 thou-
sand), which are subject to amortization and primarily consist
of software of ¥34,441 million ($425,198 thousand), which is
mainly for internal use, in addition to those recorded from

acquired businesses. The weighted average amortization period
for software and intangible assets in total is approximately 4
years and 4 years, respectively.
The components of intangible assets subject to amortization
at December 31, 2010 and 2009 were as follows:

December 31

Millions of yen

Software
Customer relationships
Patented technologies
License fees
Other

2010

2009

Gross carrying
amount

¥200,245
37,637
25,425
22,108
16,686
¥302,101

Accumulated
amortization

¥109,200
12,107
9,377
14,436
4,641
¥149,761

Gross carrying
amount

Accumulated
amortization

¥198,276
8,585
11,648
23,889
10,377
¥252,775

¥114,410
2,245
2,878
13,546
3,135
¥136,214

CANON ANNUAL REPORT 2010

Thousands of U.S. dollars

Software
Customer relationships
Patented technologies
License fees
Other

2010

Gross carrying
amount

$2,472,161
464,654
313,889
272,938
206,000
$3,729,642

Accumulated
amortization

$1,348,148
149,469
115,765
178,222
57,297
$1,848,901

Aggregate amortization expense for the years ended
December 31, 2010, 2009 and 2008 was ¥43,866 million
($541,555 thousand), ¥37,994 million and ¥36,715 million,
respectively. Estimated amortization expense for intangible
assets currently held for the next ﬁ ve years ending December
31 is ¥46,572 million ($574,963 thousand) in 2011, ¥36,765 mil-
lion ($453,889 thousand) in 2012, ¥25,030 million ($309,012
thousand) in 2013, ¥16,559 million ($204,432 thousand) in 2014,
and ¥7,190 million ($88,765 thousand) in 2015.

Intangible assets not subject to amortization other than
goodwill at December 31, 2010 and 2009 were not signiﬁ cant.
For management reporting purposes, goodwill is not allocat-
ed to the segments. Goodwill has been allocated to its respec-
tive segment for impairment testing.
The changes in the carrying amount of goodwill by segment,
which is included in other assets in the consolidated balance
sheets, for the years ended December 31, 2010 and 2009 were
as follows:

Years ended December 31
Millions of yen

2010: Balance at beginning of year

Goodwill acquired during the year
Translation adjustments and other
Balance at end of year

Millions of yen

2009:

Balance at beginning of year
Goodwill acquired during the year
Translation adjustments and other
Balance at end of year

Thousands of U.S. dollars

2010: Balance at beginning of year

Goodwill acquired during the year
Translation adjustments and other
Balance at end of year

Ofﬁ ce

¥ 39,845
79,156
(11,700)
¥107,301

Consumer

¥13,303
—
(917)
¥12,386

Ofﬁ ce

¥ 36,966
2,462
417
¥ 39,845

Consumer

¥ 13,279
—
24
¥ 13,303

Industry and
Others

¥2,723
3,719
(940)
¥5,502

Industry and
Others

¥ 509
2,343
(129)
¥ 2,723

Total

¥ 55,871
82,875
(13,557)
¥125,189

Total

¥ 50,754
4,805
312
¥ 55,871

Ofﬁ ce

Consumer

$ 491,914
977,234
(144,444)
$1,324,704

$164,235
—
(11,321)
$152,914

Industry and
Others

$33,616
45,914
(11,605)
$67,925

Total

$ 689,765
1,023,148
(167,370)
$1,545,543

CANON ANNUAL REPORT 2010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES

10. Short-Term Loans and Long-Term Debt
Short-term loans consisting of bank borrowings at December 31, 2010 were ¥2,071 million ($25,568 thousand). The weighted aver-
age interest rate on short-term loans outstanding at December 31, 2010 was 1.46%.

Long-term debt consisted of the following:

December 31

Loans, principally from banks, maturing in installments through 2020;
bearing weighted average interest of 1.83% and 0.30%
at December 31, 2010 and 2009, respectively
Capital lease obligations

Less current portion

Millions of yen

2010

2009

¥1,013
8,247
9,260
(5,129)
¥4,131

20
9,761
9,781
(4,869)
¥4,912

Thousands of
U.S. dollars

2010

$ 12,506
101,815
114,321
(63,321)
$ 51,000

The aggregate annual maturities of long-term debt outstanding at December 31, 2010 were as follows:

Year ending December 31:

2011
2012
2013
2014
2015
Thereafter

Millions of yen

¥5,129
1,799
1,062
833
322
115
¥9,260

Thousands of
U.S. dollars

$ 63,321
22,210
13,111
10,284
3,975
1,420
$114,321

Both short-term and long-term bank loans are made under
general agreements which provide that security and guarantees
for present and future indebtedness will be given upon request

of the bank, and that the bank shall have the right to offset cash
deposits against obligations that have become due or, in the
event of default, against all obligations due to the bank.

11. Trade Payables
Trade payables are summarized as follows:

December 31

Notes
Accounts

Millions of yen

2010

¥ 13,676
369,575
¥383,251

2009

7,608
331,505
¥339,113

Thousands of
U.S. dollars

2010

$ 168,840
4,562,654
$4,731,494

CANON ANNUAL REPORT 2010

12. Employee Retirement and Severance Beneﬁ ts
The Company and certain of its subsidiaries have contributory and
noncontributory deﬁ ned beneﬁ t pension plans covering substan-
tially all of their employees. Beneﬁ ts payable under the plans are
based on employee earnings and years of service. The Company
and certain of its subsidiaries also have deﬁ ned contribution pen-
sion plans covering substantially all of their employees.

The amounts of cost recognized for the deﬁ ned contribution
pension plans of the Company and certain of its subsidiaries
for the years ended December 31, 2010, 2009 and 2008 were
¥11,780 million ($145,432 thousand), ¥9,148 million and ¥10,840
million, respectively.

Obligations and funded status
Reconciliations of beginning and ending balances of the beneﬁ t obligations and the fair value of the plan assets are as follows:

Years ended December 31

Japanese plans

Foreign plans

Millions of yen

Thousands of
U.S. dollars

Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

2009

2010

Change in beneﬁ t obligations:
Beneﬁ t obligations at beginning of year
Service cost
Interest cost

Plan participants’ contributions
Amendments
Actuarial (gain) loss
Beneﬁ ts paid
Acquisition
Foreign currency exchange rate changes
Beneﬁ t obligations at end of year

¥ 551,320
23,331
12,636
—
(423)
22,290
(15,880)
—
—
593,274

Change in plan assets:

Fair value of plan assets at beginning
of year

457,208

Actual return on plan assets
Employer contributions
Plan participants’ contributions
Beneﬁ ts paid
Acquisition
Foreign currency exchange rate changes
Fair value of plan assets at end of year
Funded status at end of year

4,533
13,283
—
(14,934)
—
—
460,090
¥(133,184)

¥521,985
21,759
12,535
—
(674)
10,822
(15,107)
—
—
551,320

$ 6,806,420
288,037
156,000
—
(5,223)
275,185
(196,049)
—
—
7,324,370

¥ 94,170
5,660
11,792
2,460
(149)
(5,946)
(7,458)
198,754
(38,153)
261,130

¥ 78,468
2,426
4,251
1,177
—
3,533
(1,784)
—
6,099
94,170

$1,162,593
69,877
145,580
30,370
(1,840)
(73,407)
(92,074)
2,453,753
(471,025)
3,223,827

429,870
26,616
15,173
—
(14,451)
—
—
457,208
¥ (94,112)

5,644,543
55,963
163,988
—
(184,371)
—
—
5,680,123
$(1,644,247)

75,058
19,307
8,152
2,460
(7,413)
128,043
(27,772)
197,835
¥ (63,295)

62,996
4,844
3,059
1,177
(1,784)
—
4,766
75,058
¥(19,112)

926,642
238,358
100,642
30,370
(91,519)
1,580,778
(342,864)
2,442,407
$ (781,420)

CANON ANNUAL REPORT 2010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES

Amounts recognized in the consolidated balance sheets at December 31, 2010 and 2009 are as follows:

December 31

Japanese plans

Foreign plans

Other assets
Accrued expenses
Accrued pension and severance cost

Millions of yen

Thousands of
U.S. dollars

Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

2009

2010

345
—
(133,529)
¥(133,184)

707
—
(94,819)
¥(94,112)

4,259
—
(1,648,506)
$(1,644,247)

¥ 1,318
(533)
(64,080)
¥(63,295)

¥ 2,069
(96)
(21,085)
¥(19,112)

$ 16,271
(6,580)
(791,111)
$(781,420)

Amounts recognized in accumulated other comprehensive income (loss) at December 31, 2010 and 2009 before the effect of
income taxes are as follows:

December 31

Japanese plans

Foreign plans

Actuarial loss
Prior service credit
Net transition obligation

Millions of yen

Thousands of
U.S. dollars

Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

2009

2010

¥257,625
(142,473)
722
¥115,874

¥237,822
(155,928)
1,444
¥ 83,338

$3,180,555
(1,758,926)
8,914
$1,430,543

¥3,538
(486)
—
¥3,052

¥19,411
(670)
—
¥18,741

$43,679
(6,000)
—
$37,679

The accumulated beneﬁ t obligation for all deﬁ ned beneﬁ t plans was as follows:

December 31

Japanese plans

Foreign plans

Accumulated beneﬁ t obligation

¥565,406

¥522,582

$6,980,321

¥216,239

¥80,361

$2,669,617

Millions of yen

Thousands of
U.S. dollars

Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

2009

2010

The projected beneﬁ t obligations and the fair value of plan
assets for the pension plans with projected beneﬁ t obligations in
excess of plan assets, and the accumulated beneﬁ t obligations

and the fair value of plan assets for the pension plans with
accumulated beneﬁ t obligations in excess of plan assets are
as follows:

December 31

Japanese plans

Foreign plans

Millions of yen

Thousands of
U.S. dollars

Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

2009

2010

Plans with projected beneﬁ t obligations
in excess of plan assets:
Projected beneﬁ t obligations
Fair value of plan assets
Plans with accumulated beneﬁ t obligations
in excess of plan assets:
Accumulated beneﬁ t obligations
Fair value of plan assets

¥589,391
455,862

¥545,466
450,647

$7,276,432
5,627,926

¥258,326
193,713

¥94,123
72,942

$3,189,210
2,391,519

¥559,468
453,342

¥509,638
442,756

$6,907,012
5,596,815

¥144,225
122,590

¥80,314
72,942

$1,780,556
1,513,457

CANON ANNUAL REPORT 2010

Components of net periodic beneﬁ t cost and other amounts recognized in other comprehensive income (loss)
Net periodic beneﬁ t cost for Canon’s employee retirement and severance deﬁ ned beneﬁ t plans for the years ended December 31,
2010, 2009 and 2008 consisted of the following components:

Years ended December 31

Japanese plans

Foreign plans

Service cost
Interest cost
Expected return on plan assets
Amortization of
net transition obligation
Amortization of
prior service credit
Amortization of actuarial loss

Millions of yen

Thousands of
U.S. dollars

Millions of yen

Thousands of
U.S. dollars

2010

2009

2008

2010

2009

2008

2010

¥23,331
12,636
(16,591)

¥21,759
12,535
(15,808)

¥20,786
12,253
(19,721)

$288,037
156,000
(204,827)

¥ 5,660
11,792
(10,540)

¥2,426
4,251
(4,211)

¥3,141
4,991
(5,519)

$ 69,877
145,580
(130,123)

722

8,914

—

(13,878)
14,545
¥20,765

(13,650)
13,923
¥19,481

(13,373)
7,068
¥ 7,735

(171,334)
179,568
$256,358

(116)

(98)

1,050
¥ 7,846

1,014
¥3,382

(271)
898
¥3,240

(1,433)
12,963
$ 96,864

Other changes in plan assets and beneﬁ t obligations recognized in other comprehensive income (loss) for the years ended
December 31, 2010 and 2009 are summarized as follows:

Years ended December 31

Japanese plans

Foreign plans

Current year actuarial (gain) loss
Amortization of actuarial loss
Prior service credit due to amendments
Amortization of prior service credit
Amortization of net transition obligation

Millions of yen

Thousands of
U.S. dollars

Millions of yen

2010

2009

2010

¥34,348
(14,545)
(423)
13,878
(722)
¥32,536

14
(13,923)
(674)
13,650
(722)
¥ (1,655)

$424,049
(179,568)
(5,223)
171,334
(8,914)
$401,678

¥(14,713)
(1,050)
(149)
116
—
¥(15,796)

2009

¥2,900
(1,014)
—
98
—
¥1,984

Thousands of
U.S. dollars

2010

$(181,642)
(12,963)
(1,840)
1,433
—
$(195,012)

The estimated net transition obligation, prior service credit
and actuarial loss for the deﬁ ned beneﬁ t pension plans that will
be amortized from accumulated other comprehensive income

(loss) into net periodic beneﬁ t cost over the next year are
summarized as follows:

Net transition obligation
Prior service credit
Actuarial loss

Japanese plans

Foreign plans

Millions of yen

¥
722
(13,574)
14,562

Thousands of
U.S. dollars

$
8,914
(167,580)
179,778

Millions of yen

¥ —
(132)
500

Thousands of
U.S. dollars

$ —
(1,630)
6,173

Assumptions
Weighted-average assumptions used to determine beneﬁ t obligations are as follows:

December 31

Japanese plans

Foreign plans

Discount rate
Assumed rate of increase in future compensation levels

2010

2.1%
3.0%

2009

2.3%
3.0%

2010

4.9%
2.9%

2009

5.2%
3.5%

CANON ANNUAL REPORT 2010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES

Weighted-average assumptions used to determine net periodic beneﬁ t cost are as follows:

Years ended December 31

Japanese plans

Foreign plans

Discount rate
Assumed rate of increase
in future compensation levels
Expected long-term rate of return on plan assets

2010

2.3%

3.0%
3.6%

2009

2.4%

3.0%
3.7%

2008

2.5%

2.9%
3.7%

2010

4.9%

2.8%
6.1%

2009

5.3%

3.1%
6.2%

2008

5.1%

3.1%
6.5%

Canon determines the expected long-term rate of return based
on the expected long-term return of the various asset catego-
ries in which it invests. Canon considers the current expecta-
tions for future returns and the actual historical returns of each
plan asset category.

Plan assets
Canon’s investment policies are designed to ensure adequate
plan assets are available to provide future payments of pension
beneﬁ ts to eligible participants. Taking into account the expect-
ed long-term rate of return on plan assets, Canon formulates a
“model” portfolio comprised of the optimal combination of
equity securities and debt securities. Plan assets are invested
in individual equity and debt securities using the guidelines of
the “model” portfolio in order to produce a total return that will
match the expected return on a mid-term to long-term basis.
Canon evaluates the gap between expected return and actual
return of invested plan assets on an annual basis to determine
if such differences necessitate a revision in the formulation of
the “model” portfolio. Canon revises the “model” portfolio when
and to the extent considered necessary to achieve the expect-
ed long-term rate of return on plan assets.
Canon’s model portfolio for Japanese plans consists of three
major components: approximately 30% is invested in equity
securities, approximately 50% is invested in debt securities, and
approximately 20% is invested in other investment vehicles, pri-
marily consisting of investments in life insurance company gen-
eral accounts.

Outside Japan, investment policies vary by country, but the
long-term investment objectives and strategies remain consis-
tent. However, Canon’s model portfolio for foreign plans has
been developed as follows: approximately 40% is invested in
equity securities, approximately 55% is invested in debt securi-
ties, and approximately 5% is invested in other investment vehi-
cles, primarily consisting of investments in real estate assets.
The equity securities are selected primarily from stocks that
are listed on the securities exchanges. Prior to investing, Canon
has investigated the business condition of the investee compa-
nies, and appropriately diversiﬁ ed investments by type of
industry and other relevant factors. The debt securities are
selected primarily from government bonds, public debt instru-
ments, and corporate bonds. Prior to investing, Canon has
investigated the quality of the issue, including rating, interest
rate, and repayment dates, and has appropriately diversiﬁ ed
the investments. Pooled funds are selected using strategies
consistent with the equity and debt securities described above.
As for investments in life insurance company general accounts,
the contracts with the insurance companies include a guaran-
teed interest rate and return of capital. With respect to invest-
ments in foreign investment vehicles, Canon has investigated
the stability of the underlying governments and economies, the
market characteristics such as settlement systems and the tax-
ation systems. For each such investment, Canon has selected
the appropriate investment country and currency.

CANON ANNUAL REPORT 2010

The three levels of input used to measure fair value are more fully described in Note 22.
The fair values of Canon’s pension plan assets at December 31, 2010 and 2009, by asset category, are as follows:

December 31, 2010

Millions of yen

Japanese plans

Foreign plans

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Equity securities:

Japanese companies (a)

Foreign companies
Pooled funds (b)
Debt securities:
Government bonds (c)
Municipal bonds
Corporate bonds
Pooled funds (d)

Mortgage backed securities
(and other asset backed
securities)

Life insurance company
general accounts
Other assets

¥50,177
5,352
—

¥ — ¥ — ¥ 50,177
5,352
90,597

—
90,597

—
—

¥ — ¥ —
—
80,666

3,474
—

¥ —
—
—

¥ —
3,474
80,666

—
9,687
323
—
6,518
—
— 194,286

9,687
—
323
—
6,518
—
— 194,286

2,074
—
—
—

—
—
—
104,650

—
—
—
—

2,074
—
—
104,650

—

1,980

—

1,980

—

232

—

232

—
—
¥65,216

91,610
8,521
¥393,835

—

1,039
¥1,039

91,610
9,560
¥460,090

—
—
¥5,548

—

6,739
¥192,287

—
—
¥ —

—
6,739
¥197,835

December 31, 2009

Millions of yen

Japanese plans

Foreign plans

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Equity securities:

Japanese companies (e)

Foreign companies
Pooled funds (f)
Debt securities:
Government bonds (g)
Municipal bonds
Corporate bonds
Pooled funds (h)

Mortgage backed securities
(and other asset backed
securities)

Life insurance company
general accounts
Other assets

¥48,844
5,444
—

¥ —
—
85,353

¥ — ¥ 48,844
5,444
85,353

—
—

14,803
—
—
—

—
879
7,665
189,870

—
—
—
—

14,803
879
7,665
189,870

¥ —
3,898
—

1,581
—
—
—

¥ —
—
47,290

¥ —
—
—

—
—
6,673
9,343

—
—
—
—

¥ —
3,898
47,290

1,581
—
6,673
9,343

—

943

—

943

—

256

—

256

—
—
¥69,091

94,269
8,367
¥387,346

—

771
¥771

94,269
9,138
¥457,208

—
—
¥5,479

—

6,017
¥69,579

—
—
¥ —

—
6,017
¥75,058

CANON ANNUAL REPORT 2010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES

December 31, 2010

Thousands of U.S. dollars

Japanese plans

Foreign plans

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Equity securities:

Japanese companies (a)

Foreign companies
Pooled funds (b)
Debt securities:
Government bonds (c)
Municipal bonds
Corporate bonds
Pooled funds (d)

Mortgage backed securities
(and other asset backed
securities)

Life insurance company
general accounts
Other assets

$619,469 $ — $ — $ 619,469
—
66,074
— 1,118,481

—
— 1,118,481

66,074

$ — $ — $ — $ —
42,889
995,877

—
995,877

42,889
—

—
—

—
119,593
3,988
—
—
80,469
— 2,398,593

119,593
—
3,988
—
—
80,469
— 2,398,593

—
25,605
—
—
—
—
— 1,291,975

—

24,444

—

24,444

— 1,130,988

—

2,864

—

—
—
—
—

—

25,605
—
—
1,291,975

2,864

—

— 105,197

118,024
$805,136 $4,862,160 $12,827 $5,680,123

12,827

—

83,197
$68,494 $2,373,913

—

83,197
$ — $2,442,407

(a) The plan’s equity securities include common stock of the
Company and certain of its subsidiaries in the amounts of
¥1,044 million ($12,889 thousand) at December 31, 2010.
(b) These funds invest in listed equity securities consisting of
approximately 50% Japanese companies and 50% foreign
companies for Japanese plans and mainly foreign compa-
nies for foreign plans.

bonds and 50% foreign government bonds.

(d) These funds invest in approximately 60% Japanese govern-

ment bonds, 20% foreign government bonds, 10% Japanese
municipal bonds, and 10% corporate bonds for Japanese
plans. These funds invest in approximately 40% foreign gov-
ernment bonds and 60% corporate bonds for foreign plans.

(e) The plan’s equity securities include common stock of the
Company and certain of its subsidiaries in the amounts of
¥950 million at December 31, 2009.

(f) These funds invest in listed equity securities consisting of
approximately 50% Japanese companies and 50% foreign
companies for Japanese plans, and mainly foreign compa-
nies for foreign plans.

(g) This class includes approximately 80% Japanese government

bonds and 20% foreign government bonds.

(h) These funds invest in approximately 55% Japanese govern-

ment bonds, 25% foreign government bonds, 10% Japanese
municipal bonds, and 10% corporate bonds.

Each level into which assets are categorized is based on
inputs used to measure the fair value of the assets, and does
not necessarily indicate the risks or ratings of the assets.
Level 1 assets are comprised principally of equity securities
and government bonds, which are valued using unadjusted
quoted market prices in active markets with sufﬁ cient volume
and frequency of transactions. Level 2 assets are comprised
principally of pooled funds that invest in equity and debt securi-
ties, corporate bonds and investments in life insurance compa-
ny general accounts. Pooled funds are valued at their net asset
values that are calculated by the sponsor of the fund and have
daily liquidity. Corporate bonds are valued using quoted prices
for identical assets in markets that are not active. Investments
in life insurance company general accounts are valued at con-
version value.
The fair value of Level 3 assets, consisting of hedge funds,
was ¥1,039 million ($12,827 thousand) and ¥771 million at
December 31, 2010 and 2009, respectively. Amounts of actual
returns on, and purchases and sales of, these assets during the
years ended December 31, 2010 and 2009 were not signiﬁ cant.

CANON ANNUAL REPORT 2010

Contributions
Canon expects to contribute ¥22,055 million ($272,284 thousand) to its Japanese deﬁ ned beneﬁ t pension plans and ¥8,016 million
($98,963 thousand) to its foreign deﬁ ned beneﬁ t pension plans for the year ending December 31, 2011.

Estimated future beneﬁ t payments
The following beneﬁ t payments, which reﬂ ect expected future service, as appropriate, are expected to be paid:

Year ending December 31:

Japanese plans

Foreign plans

2011
2012
2013
2014
2015
2016–2020

Millions of yen

¥ 14,442
15,397
16,779
17,692
19,552
123,422

Thousands of
U.S. dollars

$ 178,296
190,086
207,148
218,420
241,383
1,523,728

Millions of yen

¥ 9,199
9,420
9,801
10,045
10,483
61,020

Thousands of
U.S. dollars

$113,568
116,296
121,000
124,012
129,420
753,333

13. Income Taxes
Domestic and foreign components of income before income taxes and the current and deferred income tax expense (beneﬁ t)
attributable to such income are summarized as follows:

Years ended December 31

2010:

Income before income taxes
Income taxes:
Current
Deferred

2009:

Income before income taxes
Income taxes:
Current
Deferred

2008:

Income before income taxes
Income taxes:
Current
Deferred

2010:

Income before income taxes
Income taxes:
Current
Deferred

Japanese

¥302,965

¥ 78,359
35,496
¥113,855

Millions of yen

Foreign

Total

¥89,898

¥392,863

¥32,420
(6,115)
¥26,305

¥110,779
29,381
¥140,160

¥ 130,857

¥ 88,498

¥ 219,355

¥ 45,079
15,415
¥ 60,494

¥ 18,331
5,297
¥ 23,628

¥ 63,410
20,712
¥ 84,122

¥ 382,299

¥ 98,848

¥ 481,147

¥ 168,428
(34,073)
¥ 134,355

¥ 24,857
1,576
¥ 26,433

¥ 193,285
(32,497)
¥ 160,788

Thousands of U.S. dollars

Japanese

Foreign

Total

$3,740,309

$1,109,851

$4,850,160

$ 967,395
438,222
$1,405,617

$ 400,247
(75,494)
$ 324,753

$1,367,642
362,728
$1,730,370

CANON ANNUAL REPORT 2010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES

The Company and its domestic subsidiaries are subject to a
number of income taxes, which, in the aggregate, represent a
statutory income tax rate of approximately 40% for the years
ended December 31, 2010, 2009 and 2008.

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

Years ended December 31

Japanese statutory income tax rate
Increase (reduction) in income taxes resulting from:
Expenses not deductible for tax purposes

Income of foreign subsidiaries taxed at lower than
Japanese statutory tax rate

Tax credit for research and development expenses
Change in valuation allowance
Other
Effective income tax rate

2010

40.0%

0.8

(3.5)
(5.1)
2.8
0.7
35.7%

2009

40.0%

0.9

(5.4)
(2.8)
5.4
0.2
38.3%

2008

40.0%

0.5

(2.6)
(4.6)
0.1
0.0
33.4%

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

December 31

Prepaid expenses and other current assets
Other assets
Other current liabilities
Other noncurrent liabilities

Millions of yen

2010

¥ 69,197
136,727
(2,149)
(47,827)
¥155,948

2009

¥ 94,798
117,263
(2,018)
(36,278)
¥173,765

Thousands of
U.S. dollars

2010

$ 854,284
1,687,988
(26,531)
(590,457)
$1,925,284

CANON ANNUAL REPORT 2010

The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities at December 31, 2010
and 2009 are presented below:

December 31

Deferred tax assets:

Inventories

Accrued business tax
Accrued pension and severance cost
Research and development—costs capitalized for tax purposes
Property, plant and equipment
Accrued expenses
Net operating losses carried forward
Other

Less valuation allowance
Total deferred tax assets

Deferred tax liabilities:
Undistributed earnings of foreign subsidiaries
Net unrealized gains on securities
Tax deductible reserve
Financing lease revenue
Prepaid pension and severance cost
Other

Total deferred tax liabilities
Net deferred tax assets

Millions of yen

2010

2009

¥ 23,836
6,200
78,552
14,740
41,737
35,823
28,373
52,869
282,130
(35,307)
246,823

(8,215)
(2,119)
(6,038)
(37,353)
(2,018)
(35,132)
(90,875)
¥155,948

¥ 24,121
3,861
52,639
45,718
53,011
29,409
12,305
44,709
265,773
(22,188)
243,585

(8,023)
(2,052)
(7,797)
(35,505)
(314)
(16,129)
(69,820)
¥173,765

Thousands of
U.S. dollars

2010

$ 294,272
76,543
969,778
181,975
515,272
442,259
350,284
652,704
3,483,087
(435,889)
3,047,198

(101,420)
(26,160)
(74,543)
(461,148)
(24,914)
(433,729)
(1,121,914)
$1,925,284

The net changes in the total valuation allowance were
increases of ¥13,119 million ($161,963 thousand), ¥11,371 mil-
lion and ¥1,490 million for the years ended December 31, 2010,
2009 and 2008, respectively.
Based upon the level of historical taxable income and projec-
tions for future taxable income over the periods which the net
deductible temporary differences are expected to reverse,
management believes it is more likely than not that Canon will

realize the beneﬁ ts of these deferred tax assets, net of the
existing valuation allowance, at December 31, 2010.
At December 31, 2010, Canon had net operating losses
which can be carried forward for income tax purposes of
¥112,779 million ($1,392,333 thousand) to reduce future taxable
income. Periods available to reduce future taxable income vary
in each tax jurisdiction and generally range from one year to
twenty years as follows:

Within one year
After one year through ﬁ ve years
After ﬁ ve years through ten years
After ten years through twenty years
Indeﬁ nite period

Total

Millions of yen

511
9,601
47,961
28,689
26,017
¥112,779

Thousands of
U.S. dollars

6,309
118,531
592,111
354,185
321,197
$1,392,333

CANON ANNUAL REPORT 2010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES

Income taxes have not been accrued on undistributed earn-
ings of domestic subsidiaries as the tax law provides a means
by which the dividends from a domestic subsidiary can be
received tax free.
Canon has not recognized deferred tax liabilities of ¥26,406
million ($326,000 thousand) for a portion of undistributed earn-
ings of foreign subsidiaries that arose for the year ended
December 31, 2010 and prior years because Canon currently
does not expect to have such amounts distributed or paid as

dividends to the Company in the foreseeable future. Deferred
tax liabilities will be recognized when Canon expects that it will
realize those undistributed earnings in a taxable manner, such
as through receipt of dividends or sale of the investments. At
December 31, 2010, such undistributed earnings of these sub-
sidiaries were ¥816,317 million ($10,077,988 thousand).
A reconciliation of the beginning and ending amount of
unrecognized tax beneﬁ ts is as follows:

Years ended December 31

Balance at beginning of year
Additions for tax positions of the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements with tax authorities
Additions from acquisitions
Other
Balance at end of year

2010

¥13,235
73
805
(8,354)
(2,471)
4,066
(1,319)
¥ 6,035

Millions of yen

2009

¥12,689
—
1,442
(1,106)
—
—
210
¥13,235

2008

¥15,791
8,700
1,354
(8,512)
(1,208)
—
(3,436)
¥12,689

Thousands of
U.S. dollars

2010

$163,395
901
9,938
(103,136)
(30,506)
50,198
(16,284)
$ 74,506

The total amounts of unrecognized tax beneﬁ ts that would
reduce the effective tax rate, if recognized, are ¥6,035 million
($74,506 thousand) and ¥4,746 million at December 31, 2010
and 2009, respectively.
Although Canon believes its estimates and assumptions of
unrecognized tax beneﬁ ts are reasonable, uncertainty regard-
ing the ﬁ nal determination of tax audit settlements and any
related litigation could affect the effective tax rate in the future
period. Based on each of the items of which Canon is aware at
December 31, 2010, no signiﬁ cant changes to the unrecognized
tax beneﬁ ts are expected within the next twelve months.
Canon recognizes interest and penalties accrued related to
unrecognized tax beneﬁ ts in income taxes. Both interest and
penalties accrued at December 31, 2010 and 2009, and interest
and penalties included in income taxes for the years ended
December 31, 2010, 2009 and 2008 are not material.

Canon ﬁ les income tax returns in Japan and various foreign
tax jurisdictions. In Japan, Canon is no longer subject to regular
income tax examinations by the tax authority for years before
2006. While there has been no speciﬁ c indication by the tax
authority that Canon will be subject to a transfer pricing exami-
nation in the near future, the tax authority could conduct a
transfer pricing examination for years after 2003. In other major
foreign tax jurisdictions, including the United States and
Netherlands, Canon is no longer subject to income tax exami-
nations by tax authorities for years before 2004 with few
exceptions. The tax authorities are currently conducting income
tax examinations of Canon’s income tax returns for years after
2005 in Japan and for certain years after 2003 in major foreign
tax jurisdictions.

14. Common Stock
For the year ended December 31, 2008, the Company issued
127,254 shares of common stock in connection with the con-
version of convertible debt. In accordance with the Corporation
Law of Japan, conversion into common stock of convertible

debt is accounted for by crediting one-half or more of the con-
version price to the common stock account and the remainder
to the additional paid-in capital account.

CANON ANNUAL REPORT 2010

15. Legal Reserve and Retained Earnings
The Corporation Law of Japan provides that an amount equal to
10% of distributions from retained earnings paid by the
Company and its Japanese subsidiaries be appropriated as a
legal reserve. No further appropriations are required when the
total amount of the additional paid-in capital and the legal
reserve equals 25% of their respective stated capital. The
Corporation Law of Japan also provides that additional paid-in
capital and legal reserve are available for appropriations by the
resolution of the stockholders. Certain foreign subsidiaries are
also required to appropriate their earnings to legal reserves
under the laws of the respective countries.
Cash dividends and appropriations to the legal reserve charged
to retained earnings for the years ended December 31, 2010, 2009
and 2008 represent dividends paid out during those years and the

related appropriations to the legal reserve. Retained earnings at
December 31, 2010 did not reﬂ ect current year-end dividends in
the amount of ¥79,850 million ($985,802 thousand) which were
approved by the stockholders in March 2011.
The amount available for dividends under the Corporation Law
of Japan is based on the amount recorded in the Company’s
nonconsolidated books of account in accordance with ﬁ nancial
accounting standards of Japan. Such amount was ¥1,304,811
million ($16,108,778 thousand) at December 31, 2010.
Retained earnings at December 31, 2010 included Canon’s
equity in undistributed earnings of afﬁ liated companies account-
ed for by the equity method in the amount of ¥15,133 million
($186,827 thousand).

16. Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) are as follows:

Years ended December 31

Foreign currency translation adjustments:
Balance at beginning of year
Adjustments for the year
Balance at end of year
Net unrealized gains and losses on securities:
Balance at beginning of year
Adjustments for the year
Balance at end of year
Net gains and losses on derivative instruments:
Balance at beginning of year
Adjustments for the year
Balance at end of year
Pension liability adjustments:
Balance at beginning of year
Adjustments for the year
Balance at end of year
Total accumulated other comprehensive income (loss):
Balance at beginning of year
Adjustments for the year
Balance at end of year

Millions of yen

2010

2009

2008

Thousands of
U.S. dollars

2010

¥(202,628)
(122,984)
(325,612)

¥(235,968)
33,340
(202,628)

¥ 22,796
(258,764)
(235,968)

$(2,501,580)
(1,518,321)
(4,019,901)

3,285
(265)
3,020

71
846
917

(61,546)
(7,238)
(68,784)

1,135
2,150
3,285

1,493
(1,422)
71

(59,480)
(2,066)
(61,546)

6,287
(5,152)
1,135

(849)
2,342
1,493

6,436
(65,916)
(59,480)

40,556
(3,272)
37,284

876
10,445
11,321

(759,827)
(89,358)
(849,185)

(260,818)
(129,641)
¥(390,459)

(292,820)
32,002
¥(260,818)

34,670
(327,490)
¥(292,820)

(3,219,975)
(1,600,506)
$(4,820,481)

CANON ANNUAL REPORT 2010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES

Tax effects allocated to each component of other comprehensive income (loss) and reclassiﬁ cation adjustments, including

amounts attributable to noncontrolling interests, are as follows:

Years ended December 31

2010:
Foreign currency translation adjustments
Net unrealized gains and losses on securities:
Amount arising during the year
Reclassiﬁ cation adjustments for gains and losses realized in net income
Net change during the year
Net gains and losses on derivative instruments:
Amount arising during the year
Reclassiﬁ cation adjustments for gains and losses realized in net income
Net change during the year
Pension liability adjustments:
Amount arising during the year
Reclassiﬁ cation adjustments for gains and losses realized in net income
Net change during the year
Other comprehensive income (loss)
2009:
Foreign currency translation adjustments
Net unrealized gains and losses on securities:
Amount arising during the year
Reclassiﬁ cation adjustments for gains and losses realized in net income
Net change during the year
Net gains and losses on derivative instruments:
Amount arising during the year
Reclassiﬁ cation adjustments for gains and losses realized in net income
Net change during the year
Pension liability adjustments:
Amount arising during the year
Reclassiﬁ cation adjustments for gains and losses realized in net income
Net change during the year
Other comprehensive income (loss)
2008:
Foreign currency translation adjustments
Net unrealized gains and losses on securities:
Amount arising during the year
Reclassiﬁ cation adjustments for gains and losses realized in net income
Net change during the year
Net gains and losses on derivative instruments:
Amount arising during the year
Reclassiﬁ cation adjustments for gains and losses realized in net income
Net change during the year
Pension liability adjustments:
Amount arising during the year
Reclassiﬁ cation adjustments for gains and losses realized in net income
Net change during the year
Other comprehensive income (loss)

Before-tax
amount

Millions of yen

Tax (expense)
or beneﬁ t

Net-of-tax
amount

¥(128,271)

¥ 1,353

¥(126,918)

(2,179)
1,320
(859)

8,409
(6,990)
1,419

(19,170)
2,323
(16,847)
¥(144,558)

671
42
713

(3,573)
2,921
(652)

8,314
(794)
7,520
¥ 8,934

(1,508)
1,362
(146)

4,836
(4,069)
767

(10,856)
1,529
(9,327)
¥(135,624)

¥ 35,459

¥ (2,089)

¥ 33,370

2,231
2,205
4,436

298
(2,670)
(2,372)

(1,333)
(886)
(2,219)

(119)
1,068
949

898
1,319
2,217

179
(1,602)
(1,423)

(4,115)
1,911
(2,204)
¥ 35,319

1,891
(632)
1,259
¥ (2,100)

(2,224)
1,279
(945)
¥ 33,219

¥ (266,568)

¥ 5,893

¥ (260,675)

(17,485)
7,752
(9,733)

23,121
(19,219)
3,902

6,992
(3,101)
3,891

(9,248)
7,688
(1,560)

(10,493)
4,651
(5,842)

13,873
(11,531)
2,342

(111,215)
(4,956)
(116,171)
¥ (388,570)

39,233
2,073
41,306
¥ 49,530

(71,982)
(2,883)
(74,865)
¥ (339,040)

CANON ANNUAL REPORT 2010

Thousands of U.S. dollars

Before-tax
amount

Tax (expense)
or beneﬁ t

Net-of-tax
amount

$(1,583,593)

$ 16,705

$(1,566,888)

(26,901)
16,296
(10,605)

103,815
(86,296)
17,519

8,284
518
8,802

(44,111)
36,061
(8,050)

(18,617)
16,814
(1,803)

59,704
(50,235)
9,469

(236,666)

102,641

28,678

(207,988)

(9,801)

92,840

(134,025)

18,877

(115,148)

$(1,784,667)

$110,297

$(1,674,370)

17. Stock-Based Compensation

On May 1, 2010, based on the approval of the stockholders, the
Company granted stock options to its directors, executive ofﬁ -
cers and certain employees to acquire 890,000 shares of com-
mon stock. These option awards vest after two years of
continued service beginning on the grant date and have a four
year contractual term. The grant-date fair value per share of the
stock options granted during the year ended December 31,
2010 was ¥988 ($12.20).
On May 1, 2009, based on the approval of the stockholders,
the Company granted stock options to its directors, executive
ofﬁ cers and certain employees to acquire 954,000 shares of
common stock. These option awards vest after two years of
continued service beginning on the grant date and have a four
year contractual term. The grant-date fair value per share of the
stock options granted during the year ended December 31,
2009 was ¥699.
On May 1, 2008, based on the approval of the stockholders,
the Company granted stock options to its directors, executive
ofﬁ cers and certain employees to acquire 592,000 shares of
common stock. These option awards vest after two years of

continued service beginning on the grant date and have a four
year contractual term. The grant-date fair value per share of the
stock options granted during the year ended December 31,
2008 was ¥1,247.
The compensation cost recognized for these stock options
for the years ended December 31, 2010, 2009 and 2008 was
¥643 million ($7,938 thousand), ¥564 million and ¥246 million,
respectively, and is included in selling, general and administra-
tive expenses in the consolidated statements of income.
The fair value of each option award was estimated on the
date of grant using the Black-Scholes option pricing model that
incorporates the assumptions presented below:

Years ended December 31

2010

2009

2008

Expected term of option (in years) 4.0
Expected volatility
Dividend yield
Risk-free interest rate

4.0
38.00% 40.08% 37.39%
2.10%
0.95%

2.53% 3.51%
0.45% 0.64%

4.0

CANON ANNUAL REPORT 2010

A summary of option activity under the stock option plans as of and for the years ended December 31, 2010, 2009 and 2008 is

presented below:

Weighted-average
exercise price

Weighted-
average
remaining
contractual
term

Aggregate
intrinsic value

Yen

U.S. dollars

Year

Millions of yen

Thousands of
U.S. dollars

Outstanding at January 1, 2008
Granted
Forfeited
Outstanding at December 31, 2008
Granted
Forfeited
Outstanding at December 31, 2009
Granted
Exercised
Forfeited
Outstanding at December 31, 2010
Exercisable at December 31, 2010

—
592,000
—
592,000
954,000
(34,000)
1,512,000
890,000
—
(182,000)
2,220,000
558,000

¥ —
5,502
—
5,502
3,287
4,851
4,119
4,573
—
3,479
¥4,354
¥5,502

3.3

3.0

2.5
1.3

¥ —

$ —

588

7,259

¥722
¥ —

$8,914
$ —

$50.85
56.46
—
42.95
$53.75
$67.93

At December 31, 2010, all outstanding option awards were vested or expected to be vested.

A summary of the status of the Company’s nonvested shares at December 31, 2010, and changes during the year ended
December 31, 2010, is presented below:

Year ended December 31, 2010

Nonvested at January 1, 2010
Granted
Vested
Forfeited
Nonvested at December 31, 2010

Weighted-average
grant-date fair value

1,512,000
890,000
(558,000)
(182,000)
1,662,000

Yen

¥ 905
988
1,247
745
¥ 852

U.S. dollars

$11.17
12.20
15.40
9.20
$10.52

At December 31, 2010, there was ¥671 million ($8,284 thou-
sand) of total unrecognized compensation cost related to non-
vested stock options. That cost is expected to be recognized

over a weighted-average period of 0.86 year. The total fair value
of shares vested during the year ended December 31, 2010
was ¥696 million ($8,593 thousand).

CANON ANNUAL REPORT 2010

18. Net Income Attributable to Canon Inc. Stockholders per Share
A reconciliation of the numerators and denominators of basic and diluted net income attributable to Canon Inc. stockholders per
share computations is as follows:

Years ended December 31

Net income attributable to Canon Inc.
Effect of dilutive securities:

1.30% Japanese yen convertible debentures,
due 2008

Diluted net income attributable to Canon Inc.

Average common shares outstanding
Effect of dilutive securities:
Stock options

1.30% Japanese yen convertible debentures,
due 2008

Diluted common shares outstanding

Net income attributable to Canon Inc.
stockholders per share:
Basic
Diluted

Millions of yen

2010

2009

¥246,603

¥131,647

2008

¥309,148

Thousands of
U.S. dollars

2010

$3,044,481

—
¥246,603

—
¥131,647

2
¥309,150

—
$3,044,481

Number of shares

1,234,817,511 1,234,481,836

1,255,626,490

50,603

—

—
1,234,868,114 1,234,481,836

—

79,929
1,255,706,419

Yen

U.S. dollars

¥199.71
199.70

¥106.64
106.64

¥246.21
246.20

$2.47
2.47

The computation of diluted net income attributable to Canon
Inc. stockholders per share for the years ended December 31,
2009 and 2008 excludes outstanding stock options because the
effect would be anti-dilutive. The computation of diluted net

income attributable to Canon Inc. stockholders per share for
the year ended December 31, 2010 excludes certain outstand-
ing stock options because the effect would be anti-dilutive.

19. Derivatives and Hedging Activities
Risk management policy
Canon operates internationally, exposing it to the risk of chang-
es in foreign currency exchange rates. Derivative ﬁ nancial
instruments are comprised principally of foreign exchange con-
tracts utilized by the Company and certain of its subsidiaries to
reduce the risk. Canon assesses foreign currency exchange rate
risk by continually monitoring changes in the exposures and by
evaluating hedging opportunities. Canon does not hold or issue
derivative ﬁ nancial instruments for trading purposes. Canon is
also exposed to credit-related losses in the event of non-perfor-
mance by counterparties to derivative ﬁ nancial instruments, but
it is not expected that any counterparties will fail to meet their
obligations. Most of the counterparties are internationally recog-
nized ﬁ nancial institutions and selected by Canon taking into
account their ﬁ nancial condition, and contracts are diversiﬁ ed
across a number of major ﬁ nancial institutions.

Foreign currency exchange rate risk management
Canon’s international operations expose Canon to the risk of
changes in foreign currency exchange rates. Canon uses for-
eign exchange contracts to manage certain foreign currency
exchange exposures principally from the exchange of U.S. dol-
lars and euros into Japanese yen. These contracts are primarily
used to hedge the foreign currency exposure of forecasted
intercompany sales and intercompany trade receivables that
are denominated in foreign currencies. In accordance with
Canon’s policy, a speciﬁ c portion of foreign currency exposure
resulting from forecasted intercompany sales are hedged using
foreign exchange contracts which principally mature within
three months.

CANON ANNUAL REPORT 2010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES

Cash ﬂ ow hedge
Changes in the fair value of derivative ﬁ nancial instruments
designated as cash ﬂ ow hedges, including foreign exchange
contracts associated with forecasted intercompany sales, are
reported in accumulated other comprehensive income (loss).
These amounts are subsequently reclassiﬁ ed into earnings
through other income (deductions) in the same period as the
hedged items affect earnings. Substantially all amounts record-
ed in accumulated other comprehensive income (loss) at year-
end are expected to be recognized in earnings over the next 12
months. Canon excludes the time value component from the
assessment of hedge effectiveness. Changes in the fair value of
a foreign exchange contract for the period between the date
that the forecasted intercompany sales occur and its maturity

date are recognized in earnings and not considered hedge inef-
fectiveness.

Derivatives not designated as hedges
Canon has entered into certain foreign exchange contracts to
primarily offset the earnings impact related to ﬂ uctuations in
foreign currency exchange rates associated with certain assets
denominated in foreign currencies. Although these foreign
exchange contracts have not been designated as hedges as
required in order to apply hedge accounting, the contracts are
effective from an economic perspective. The changes in the fair
value of these contracts are recorded in earnings immediately.
Contract amounts of foreign exchange contracts as of
December 31, 2010 and 2009 are set forth below:

December 31

To sell foreign currencies
To buy foreign currencies

Millions of yen

2010

¥466,361
48,686

2009

¥494,314
30,978

Thousands of
U.S. dollars

2010

$5,757,543
601,062

Fair value of derivative instruments in the consolidated balance sheets
The following tables present Canon’s derivative instruments measured at gross fair value as reﬂ ected in the consolidated balance
sheets as of December 31, 2010 and 2009.

Derivatives designated as hedging instruments

December 31

Fair value

Millions of yen

Balance sheet location

2010

2009

Assets:
Foreign exchange contracts

Liabilities:
Foreign exchange contracts

Prepaid expenses and
other current assets

¥2,487

Other current liabilities

426

Derivatives not designated as hedging instruments

December 31

¥ —

644

Fair value

Balance sheet location

2010

2009

Millions of yen

Assets:
Foreign exchange contracts

Liabilities:
Foreign exchange contracts

Prepaid expenses and
other current assets

¥9,463

Other current liabilities

487

¥ 752

6,566

Thousands of
U.S. dollars

2010

$ 30,704

5,259

Thousands of
U.S. dollars

2010

$116,827

6,013

CANON ANNUAL REPORT 2010

Effect of derivative instruments on the consolidated statements of income
The following tables present the effect of Canon’s derivative instruments on the consolidated statements of income for the years
ended December 31, 2010 and 2009.

Derivatives in cash ﬂ ow hedging relationships

Years ended December 31

Gain (loss) recognized
in OCI (effective portion)

Gain (loss) reclassiﬁ ed from
accumulated OCI into income
(effective portion)

Gain (loss) recognized in income
(ineffective portion and amount excluded
from effectiveness testing)

Millions of yen

Amount

Location

Amount

Location

Amount

2010:

2009:

Foreign exchange
contracts
Foreign exchange
contracts

Thousands of U.S. dollars

2010:

Foreign exchange
contracts

¥ 1,419

Other, net

¥ 6,990

Other, net

¥ (302)

¥ (2,372)

Other, net

¥ 2,670

Other, net

¥ (462)

$17,519

Other, net

$86,296

Other, net

$(3,728)

The amount of the hedging ineffectiveness was not material for
the year ended December 31, 2008. The amount of net gains or
losses excluded from the assessment of hedge effectiveness

(time value component) which was recorded in other income
(deductions) was net losses of ¥3,701 million for the year
ended December 31, 2008.

Derivatives not designated as hedging instruments

Years ended December 31

Gain (loss) recognized in income on derivative

Foreign exchange contracts

Location

Other, net

Millions of yen

2010

¥50,794

2009

¥(8,638)

Thousands of
U.S. dollars

2010

$627,086

20. Commitments and Contingent Liabilities
Commitments
At December 31, 2010, commitments outstanding for the pur-
chase of property, plant and equipment approximated ¥29,383
million ($362,753 thousand), and commitments outstanding for
the purchase of parts and raw materials approximated ¥86,434
million ($1,067,086 thousand).
Canon occupies sales ofﬁ ces and other facilities under lease
arrangements accounted for as operating leases. Deposits

made under such arrangements aggregated ¥13,686 million
($168,963 thousand) and ¥14,210 million at December 31, 2010
and 2009, respectively, and are included in noncurrent receiv-
ables in the accompanying consolidated balance sheets.
Rental expenses under such operating lease arrangements
amounted to ¥40,396 million ($498,716 thousand), ¥36,474 mil-
lion and ¥41,169 million for the years ended December 31,
2010, 2009 and 2008, respectively.

CANON ANNUAL REPORT 2010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES

Future minimum lease payments required under noncancelable operating leases that have initial or remaining lease terms in
excess of one year at December 31, 2010 are as follows:

Year ending December 31:

2011
2012
2013
2014
2015
Thereafter
Total future minimum lease payments

Millions of yen

¥23,413
22,054
10,290
8,359
5,582
14,102
¥83,800

Thousands of
U.S. dollars

$ 289,049
272,272
127,037
103,198
68,914
174,098
$1,034,568

Guarantees
Canon provides guarantees for bank loans of its employees,
afﬁ liates and other companies. The guarantees for the employ-
ees are principally made for their housing loans. The guaran-
tees of loans of its afﬁ liates and other companies are made to
ensure that those companies operate with less ﬁ nancial risk.
For each guarantee provided, Canon would have to perform
under a guarantee if the borrower defaults on a payment within
the contract periods of 1 year to 30 years, in the case of
employees with housing loans, and of 1 year to 10 years, in the
case of afﬁ liates and other companies. The maximum amount

of undiscounted payments Canon would have had to make in
the event of default is ¥16,746 million ($206,741 thousand) at
December 31, 2010. The carrying amounts of the liabilities rec-
ognized for Canon’s obligations as a guarantor under those
guarantees at December 31, 2010 were not signiﬁ cant.
Canon also issues contractual product warranties under
which it generally guarantees the performance of products
delivered and services rendered for a certain period or term.
Changes in accrued product warranty cost for the years ended
December 31, 2010 and 2009 are summarized as follows:

Years ended December 31

Balance at beginning of year
Addition
Utilization
Other
Balance at end of year

Millions of yen

2010

¥13,944
17,605
(14,713)
(3,493)
¥13,343

2009

¥17,372
21,670
(22,050)
(3,048)
¥13,944

Thousands of
U.S. dollars

2010

$172,148
217,346
(181,642)
(43,124)
$164,728

Legal proceedings
In October 2003, a lawsuit was ﬁ led by a former employee
against the Company at the Tokyo District Court in Japan. The
lawsuit alleges that the former employee is entitled to ¥45,872
million ($566,321 thousand) as reasonable remuneration for an
invention related to certain technology used by the Company,
and the former employee has sued for a partial payment of
¥1,000 million ($12,346 thousand) and interest thereon. On
January 30, 2007, the Tokyo District Court of Japan ordered the
Company to pay the former employee approximately ¥33.5 mil-
lion ($414 thousand) and interest thereon. On the same day, the
Company appealed the decision. On February 26, 2009, the
Intellectual Property High Court of Japan issued a judgment in
the appellate court review and ordered the Company to pay the
former employee approximately ¥69.6 million ($859 thousand),
consisting of reasonable remuneration of approximately ¥56.3
million ($695 thousand) and interest thereon. On March 12, 2009,
the Company appealed the decision to the Supreme Court. On
October 19, 2010, the Supreme Court, by an order, dismissed the
Company’s appeal without prejudice, and the judgment made by
the Intellectual Property High Court became ﬁ nal and binding.

In Germany, Verwertungsgesellschaft Wort (“VG Wort”), a col-
lecting society representing certain copyright holders, has ﬁ led
a series of lawsuits seeking to impose copyright levies upon
digital products such as PCs and printers, that allegedly enable
the reproduction of copyrighted materials, against the compa-
nies importing and distributing these digital products. VG Wort
ﬁ led a lawsuit in January 2006 against Canon seeking payment
of copyright levies on single-function printers, and the court of
ﬁ rst instance in Düsseldorf ruled in favor of the claim by VG
Wort in November 2006. Canon lodged an appeal against such
decision in December 2006 before the court of appeals in
Düsseldorf. Following a decision by the same court of appeals
in Düsseldorf on January 23, 2007 in relation to a similar court
case seeking copyright levies on single-function printers of
Epson Deutschland GmbH, Xerox GmbH and Kyocera Mita
Deutschland GmbH, whereby the court rejected such alleged
levies, in its judgment of November 13, 2007, the court of
appeals rejected VG Wort’s claim against Canon. VG Wort
appealed further against said decision of the court of appeals
before the Federal Supreme Court. In December 2007, for a
similar Hewlett-Packard GmbH case relating to single-function

CANON ANNUAL REPORT 2010

printers, the Federal Supreme Court delivered its judgment in
favor of Hewlett-Packard GmbH and dismissed VG Wort’s claim.
VG Wort has already ﬁ led a constitutional complaint with the
Federal Constitutional Court against said judgment of the
Federal Supreme Court. Likewise, after rejection by the Federal
Supreme Court of an appeal by VG Wort in relation to Canon’s
single-function printers case in September 2008, VG Wort
lodged a claim before the Federal Constitutional Court. The
Federal Constitutional Court gave its decision in September
2010 for Hewlett-Packard GmbH case where the court has
reverted the case back to the Federal Supreme Court, admitting
VG Wort’s claim for lack of ‘due process’ (i.e., request for
European Court of Justice’s preliminary ruling). It is not clear at
this stage what the implication of said decision for Hewlett-
Packard GmbH case would be on Canon’s case. In 2007, an
amendment of German copyright law was carried out, and a
new law has been effective from January 1, 2008 for both multi-
function printers and single-function printers. The new law sets
forth that the scope and tariff of copyright levies will be agreed
between industry and the collecting society. Industry and the
collecting society, based on the requirement under the new
law, reached an agreement in December 2008. This agreement
is applicable retroactively from January 1, 2008 and will remain
effective through end of 2011. However, in Canon’s assessment,

the ﬁ nal outcome of the court case regarding the single-function
printers sold in Germany before January 1, 2008 remains uncertain.
Canon is involved in various claims and legal actions, includ-
ing those noted above, arising in the ordinary course of busi-
ness. Canon has recorded provisions for liabilities when it is
probable that liabilities have been incurred and the amount of
loss can be reasonably estimated. Canon reviews these provi-
sions at least quarterly and adjusts these provisions to reﬂ ect
the impact of the negotiations, settlements, rulings, advice of
legal counsel and other information and events pertaining to a
particular case. Based on its experience, Canon believes that
any damage amounts claimed in the speciﬁ c matters discussed
above and other outstanding matters are not a meaningful indi-
cator of Canon’s potential liability. In the opinion of manage-
ment, the ultimate disposition of outstanding matters would
not have a material adverse effect on Canon’s consolidated
ﬁ nancial position, results of operations, or cash ﬂ ows. However,
litigation is inherently unpredictable. While Canon believes that
it has valid defenses with respect to legal matters pending
against it, it is possible that Canon’s consolidated ﬁ nancial posi-
tion, results of operations, or cash ﬂ ows could be materially
affected in any particular period by the unfavorable resolution
of one or more of these matters.

21. Disclosures about the Fair Value of Financial Instruments and Concentrations of Credit Risk
Fair value of ﬁ nancial instruments
The estimated fair values of Canon’s ﬁ nancial instruments at
December 31, 2010 and 2009 are set forth below. The following
summary excludes cash and cash equivalents, trade receivables,

ﬁ nance receivables, noncurrent receivables, short-term loans,
trade payables and accrued expenses for which fair values
approximate their carrying amounts. The summary also
excludes investments which are disclosed in Note 3.

December 31

Millions of yen

Thousand of U.S. dollars

Long-term debt, including current installments
Foreign exchange contracts:
Assets
Liabilities

2010

2009

2010

Carrying
amount

Estimated
fair value

Carrying
amount

¥ (9,260)

¥ (9,245)

¥(9,781)

Estimated
fair value

¥(9,777)

Carrying
amount

Estimated
fair value

$(114,321) $(114,136)

11,950
(913)

752
(7,210)

147,531
(11,272)

The following methods and assumptions are used to estimate
the fair value in the above table.

Long-term debt
The fair values of Canon’s long-term debt instruments are
based on the present value of future cash ﬂ ows associated
with each instrument discounted using current market borrow-
ing rates for similar debt instruments of comparable maturity.

Foreign exchange contracts
The fair values of foreign exchange contracts are measured
based on the market price obtained from ﬁ nancial institutions.

Limitations
Fair value estimates are made at a speciﬁ c point in time, based
on relevant market information and information about the
ﬁ nancial instruments. These estimates are subjective in nature
and involve uncertainties and matters of signiﬁ cant judgment
and therefore cannot be determined with precision. Changes in
assumptions could signiﬁ cantly affect the estimates.

Concentrations of credit risk
At December 31, 2010 and 2009, one customer accounted for
approximately 21% and 22% of consolidated trade receivables,
respectively. Although Canon does not expect that the custom-
er will fail to meet its obligations, Canon is potentially exposed
to concentrations of credit risk if the customer failed to perform
according to the terms of the contracts.

100

CANON ANNUAL REPORT 2010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES

22. Fair Value Measurements
Fair value is the price that would be received to sell an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly
transaction between market participants at the measurement
date. A three-level fair value hierarchy that prioritizes the inputs
used to measure fair value is as follows:

Level 1 — Inputs are quoted prices in active markets for identi-

cal assets or liabilities.

Level 2 — Inputs are quoted prices for similar assets or liabilities in

active markets, quoted prices for identical or similar
assets or liabilities in markets that are not active, inputs
other than quoted prices that are observable, and inputs

that are derived principally from or corroborated by
observable market data by correlation or other means.

Level 3 — Inputs are derived from valuation techniques in

which one or more signiﬁ cant inputs or value drivers
are unobservable, which reﬂ ect the reporting entity’s
own assumptions about the assumptions that mar-
ket participants would use in establishing a price.

Assets and liabilities measured at fair value
on a recurring basis
The following tables present Canon’s assets and liabilities that
are measured at fair value on a recurring basis consistent with
the fair value hierarchy at December 31, 2010 and 2009.

December 31

Millions of yen

2010: Assets:

Cash and cash equivalents

Available-for-sale (current):

Government bonds

Corporate bonds

Available-for-sale (noncurrent):

Government bonds

Corporate bonds

Fund trusts

Equity securities

Derivatives

Total assets

Liabilities:

Derivatives

Total liabilities

Millions of yen

2009:

Assets:

Cash and cash equivalents

Available-for-sale (current):

Government bonds

Available-for-sale (noncurrent):

Government bonds

Corporate bonds

Fund trusts

Equity securities

Derivatives

Total assets

Liabilities:

Derivatives

Total liabilities

Level 1

Level 2

Level 3

Total

¥ —

¥249,907

¥ —

¥249,907

—

161

—

23,402

—

1,788

—

11,950

—

1,000

—

950

—

1,000

161

994

1,798

23,402

11,950

¥23,574

¥263,689

¥1,950

¥289,213

¥ —

913

¥ —

913

Level 1

Level 2

Level 3

Total

—

¥ 184,856

¥ —

¥ 184,856

222

204

—

1,589

17,726

—

979

—

752

—

1,340

—

222

204

1,369

2,568

17,726

752

¥ 19,741

¥ 186,616

¥ 1,340

¥ 207,697

—

7,210

¥ —

7,210

CANON ANNUAL REPORT 2010 101

Thousands of U.S. dollars

2010: Assets:

Cash and cash equivalents

Available-for-sale (current):

Government bonds

Corporate bonds

Available-for-sale (noncurrent):

Government bonds

Corporate bonds

Fund trusts

Equity securities

Derivatives

Total assets

Liabilities:

Derivatives

Total liabilities

Level 1

Level 2

Level 3

Total

$ —

$3,085,272

$ —

$3,085,272

—

1,987

—

123

288,914

—

544

22,074

—

147,531

—

12,346

—

11,728

—

12,346

1,987

12,272

22,197

288,914

147,531

$291,036

$3,255,421

$24,074

$3,570,531

$ —

11,272

$ —

11,272

Level 1 investments are comprised principally of Japanese
equity securities, which are valued using an unadjusted quoted
market price in active markets with sufﬁ cient volume and fre-
quency of transactions. Level 2 cash and cash equivalents are
valued based on market approach, using quoted prices for
identical assets in markets that are not active. Level 3 invest-
ments are mainly comprised of corporate bonds, which are val-
ued based on cost approach, using unobservable inputs as the
market for the assets was not active at the measurement date.

Derivative ﬁ nancial instruments are comprised of foreign
exchange contracts. Level 2 derivatives are valued using quotes
obtained from counterparties or third parties, which are period-
ically validated by pricing models using observable market
inputs, such as foreign currency exchange rates and interest
rates, based on market approach.
The following table presents the changes in Level 3 assets
measured on a recurring basis, consisting primarily of corpo-
rate bonds, for the years ended December 31, 2010 and 2009.

Years ended December 31

Balance at beginning of year
Total gains or losses (realized or unrealized):

Included in earnings
Included in other comprehensive income (loss)

Purchases, issuances, and settlements
Balance at end of year

Millions of yen

2010

¥1,340

(79)
(7)
696
¥1,950

2009

¥1,516

(221)
(1)
46
¥1,340

Thousands of
U.S. dollars

2010

$16,543

(975)
(86)
8,592
$24,074

Gains and losses included in earnings are mainly related to cor-
porate bonds still held at December 31, 2010 and 2009, and are
reported in “Other, net” in the consolidated statements of income.

Assets and liabilities measured at fair value
on a nonrecurring basis
During the year ended December 31, 2010, non-marketable
equity securities with a carrying amount of ¥5,000 million
($61,728 thousand) were written down to their fair value of
¥2,422 million ($29,901 thousand) and equity securities
accounted for by the equity method with a carrying amount of
¥33,984 million ($419,556 thousand) were written down to their
fair value of ¥15,164 million ($187,210 thousand), resulting in an

other-than-temporary impairment charge totaling ¥21,398 mil-
lion ($264,173 thousand), which was included in earnings. The
non-marketable equity securities were classiﬁ ed as Level 2
instruments and valued based on a market approach using
observable inputs such as unadjusted quoted prices for similar
instruments in active markets at the measurement date. Equity
securities accounted for by the equity method were classiﬁ ed
as Level 3 instruments and valued based on a combination of
income approach and market approach using both unobserv-
able and observable inputs including the use of inputs such as
ﬁ nancial metrics, ratios and projected income of the investees
and appropriate comparable public companies.

102

CANON ANNUAL REPORT 2010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES

During the year ended December 31, 2009, long-lived assets
held and used with a carrying amount of ¥15,390 million were
written down to their fair value of zero, resulting in an impair-
ment charge of ¥15,390 million, and non-marketable equity
securities with a carrying amount of ¥1,468 million were written
down to their fair value of ¥480 million, resulting in an

other-than-temporary impairment charge of ¥988 million, which
was included in earnings. Both the long-lived assets and the
non-marketable equity securities were classiﬁ ed as Level 3
instruments and valued based on an income approach using
unobservable inputs such as estimate of future cash ﬂ ows.

23. Supplemental Cash Flow Information
During the year ended December 31, 2010, the Company executed
three separate share exchanges under which the Company made
its three listed subsidiaries, Canon Finetech Inc., Canon Machinery
Inc. and Tokki Corporation, its wholly owned subsidiaries. The
Company issued no new shares, as it issued 10,000,853 shares of
treasury stock for these transactions in total.

As a result of the share exchanges, the carrying amount of
the Company’s noncontrolling interest in Canon Finetech Inc.,
Canon Machinery Inc. and Tokki Corporation was decreased
from ¥38,644 million to zero.

24. Segment Information
Canon operates its business in three segments: the Ofﬁ ce
Business Unit, the Consumer Business Unit, and the Industry
and Others Business Unit, which are based on the organization-
al structure and information reviewed by Canon’s management
to evaluate results and allocate resources.

Consumer Business Unit:

Digital SLR cameras / Compact digital cameras /
Interchangeable lenses / Digital video camcorders / Inkjet
multifunction peripherals / Single function inkjet printers /
Image scanners / Broadcasting equipment

The primary products included in each segment are as follows:

Industry and Others Business Unit:

Ofﬁ ce Business Unit:

Ofﬁ ce network digital MFDs / Color network digital MFDs /
Personal-use network digital MFDs / Ofﬁ ce copying machines
/ Full-color copying machines / Personal-use copying
machines / Laser printers / Large format inkjet printers /
Digital production printers

Semiconductor lithography equipment / LCD lithography
equipment / Medical image recording equipment /
Ophthalmic products / Magnetic heads / Micromotors /
Computers / Handy terminals / Document scanners /
Calculators

The accounting policies of the segments are substantially the
same as those described in the signiﬁ cant accounting policies
in Note 1. Canon evaluates performance of, and allocates
resources to, each segment based on operating proﬁ t.

CANON ANNUAL REPORT 2010 103

Information about operating results and assets for each segment as of and for the years ended December 31, 2010, 2009 and

2008 is as follows:

Millions of yen

2010: Net sales:

External customers

Intersegment
Total

Operating cost and expenses
Operating proﬁ t (loss)
Total assets
Depreciation and amortization
Capital expenditures

2009: Net sales:

External customers

Intersegment
Total

Operating cost and expenses
Operating proﬁ t (loss)
Total assets
Depreciation and amortization
Capital expenditures

2008: Net sales:

External customers

Intersegment
Total

Operating cost and expenses
Operating proﬁ t (loss)
Total assets
Depreciation and amortization
Capital expenditures

Thousands of U.S. dollars

2010: Net sales:

External customers

Intersegment
Total

Operating cost and expenses
Operating proﬁ t (loss)
Total assets
Depreciation and amortization
Capital expenditures

Ofﬁ ce

Consumer

Industry and
Others

Corporate and
eliminations

Consolidated

¥1,978,945
8,324
1,987,269
1,693,947
¥ 293,322
¥ 855,893
103,548
53,115

¥1,389,622
1,705
1,391,327
1,153,262
¥ 238,065
¥ 414,022
41,665
36,266

¥338,334
94,624
432,958
442,789
¥ (9,831)
¥307,029
37,387
27,105

(104,653)
(104,653)
29,351

¥ — ¥3,706,901
—
3,706,901
3,319,349
¥ (134,004) ¥ 387,552
¥3,983,820
¥2,406,876
276,193
93,593
193,547
77,061

¥ 1,635,056
10,020
1,645,076
1,415,680
229,396
745,646
90,878
96,718

¥
¥

¥ 1,299,194
1,966
1,301,160
1,117,668
183,492
437,160
48,701
27,503

¥
¥

¥ 2,223,253
23,356
2,246,609
1,789,263
457,346
822,660
99,962
139,046

¥
¥

¥ 1,453,647
2,428
1,456,075
1,232,951
223,124
502,927
58,082
52,641

¥
¥

¥ 274,951
83,047
357,998
433,954
¥ (75,956)
¥ 359,635
60,770
25,644

¥ 417,261
105,144
522,405
570,281
¥ (47,876)
¥ 453,581
71,557
31,445

(95,033)
(95,033)
24,844
(119,877) ¥

— ¥ 3,209,201
—
3,209,201
2,992,146
217,055
¥ 3,847,557
315,393
258,252

¥
¥ 2,305,116
115,044
108,387

(130,928)
(130,928)
5,592
(136,520) ¥

— ¥ 4,094,161
—
4,094,161
3,598,087
496,074
¥ 3,969,934
341,337
403,400

¥
¥ 2,190,766
111,736
180,268

Ofﬁ ce

Consumer

Industry and
Others

Corporate and
eliminations

Consolidated

102,765
24,534,185
20,912,926

21,050
17,176,877
14,237,803

$24,431,420 $17,155,827 $4,176,963 $ — $45,764,210
—
1,168,197
(1,292,012)
(1,292,012) 45,764,210
5,345,160
40,979,617
5,466,530
$ 3,621,259 $ 2,939,074 $ (121,370) $ (1,654,370) $ 4,784,593
$10,566,580 $ 5,111,383 $3,790,481 $29,714,519 $49,182,963
3,409,790
2,389,469

1,278,370
655,741

1,155,469
951,370

461,568
334,630

514,383
447,728

362,358

104

CANON ANNUAL REPORT 2010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES

Intersegment sales are recorded at the same prices used in
transactions with third parties. Expenses not directly associat-
ed with speciﬁ c segments are allocated based on the most rea-
sonable measures applicable. Corporate expenses include
certain corporate research and development expenses.
Segment assets are based on those directly associated with

each segment. Corporate assets primarily consist of cash and
cash equivalents, ﬁ nance receivables, investments, deferred
tax assets, goodwill and corporate properties. Capital expendi-
tures represent the additions to property, plant and equipment
and intangible assets measured on an accrual basis.

Information by major geographic area as of and for the years ended December 31, 2010, 2009 and 2008 is as follows:

Net sales:

Japan
Americas
Europe
Asia and Oceania
Total

Long-lived assets:

Japan
Americas
Europe
Asia and Oceania
Total

2010

¥ 695,749
1,023,299
1,172,474
815,379
¥3,706,901

¥1,104,949
69,034
108,160
72,846
¥1,354,989

Millions of yen

2009

¥ 702,344
894,154
995,150
617,553
¥3,209,201

¥1,205,887
59,273
44,875
77,146
¥1,387,181

2008

¥ 868,280
1,154,571
1,341,400
729,910
¥4,094,161

¥1,314,092
43,435
47,392
71,407
¥1,476,326

Thousands of
U.S. dollars

2010

$ 8,589,494
12,633,321
14,474,988
10,066,407
$45,764,210

$13,641,346
852,272
1,335,308
899,333
$16,728,259

Net sales are attributed to areas based on the location where
the product is shipped to the customers. Other than in Japan
and the United States, Canon does not conduct business in any
individual country in which its sales in that country exceed 10%
of consolidated net sales. Net sales in the United States are

¥836,645 million ($10,328,951 thousand), ¥793,428 million and
¥1,043,333 million for the years ended December 31, 2010,
2009 and 2008, respectively.
Long-lived assets represent property, plant and equipment
and intangible assets for each geographic area.

CANON ANNUAL REPORT 2010 105

The following information is based on the location of the
Company and its subsidiaries as of and for the years ended
December 31, 2010, 2009 and 2008. In addition to the disclosure

requirements under U.S. GAAP, Canon discloses this information
as supplemental information based on the disclosure require-
ments of the Japanese Financial Instruments and Exchange Law.

Millions of yen

2010: Net sales:

External customers

Intersegment
Total

Operating cost and expenses
Operating proﬁ t
Total assets

2009: Net sales:

Japan

Americas

Europe

Asia and
Oceania

Corporate and
eliminations

Consolidated

1,974,591
2,828,799
2,398,439

¥ 854,208 ¥1,008,200 ¥1,163,452 ¥ 681,041
723,423
1,404,464
1,357,663
¥ 430,360 ¥
46,801
¥1,321,572 ¥ 251,587 ¥ 472,785 ¥ 421,250

7,975
1,016,175
993,310

3,489
1,166,941
1,126,521

22,865 ¥

40,420 ¥

¥ — ¥3,706,901
(2,709,478)
—
3,706,901
(2,709,478)
3,319,349
(2,556,584)
¥ (152,894) ¥ 387,552
¥3,983,820
¥1,516,626

External customers

Intersegment
Total

Operating cost and expenses
Operating proﬁ t
Total assets

827,762
1,714,375
2,542,137
2,288,471
¥
253,666
¥ 1,386,511

¥
¥

871,633
1,263
872,896
860,863
12,033
198,094

¥
¥

991,336
919
992,255
964,606
27,649
378,477

2008: Net sales:

External customers

Intersegment
Total

Operating cost and expenses
Operating proﬁ t
Total assets

998,676
2,318,521
3,317,197
2,812,645
¥
504,552
¥ 1,607,653

¥ 1,141,560
3,758
1,145,318
1,136,288
¥ 9,030
203,255
¥

¥ 1,337,147
4,329
1,341,476
1,314,942
26,534
417,562

¥
¥

518,470
534,147
1,052,617
1,019,208
33,409
384,795

¥ — ¥ 3,209,201
—
3,209,201
2,992,146
¥
217,055
¥ 3,847,557

(2,250,704)
(2,250,704)
(2,141,002)
¥ (109,702)
¥ 1,499,680

616,778
670,678
1,287,456
1,247,156
40,300
344,638

¥ — ¥ 4,094,161
—
4,094,161
3,598,087
¥
496,074
¥ 3,969,934

(2,997,286)
(2,997,286)
(2,912,944)
¥
(84,342)
¥ 1,396,826

Thousands of U.S. dollars

2010: Net sales:

External customers

Intersegment
Total

Operating cost and expenses
Operating proﬁ t
Total assets

Japan

Americas

Europe

Asia and
Oceania

Corporate and
eliminations

Consolidated

98,456

$10,545,778 $12,446,914 $14,363,605 $ 8,407,913 $ — $45,764,210
24,377,666
—
34,923,444 12,545,370 14,406,679 17,339,062 (33,450,345) 45,764,210
29,610,358 12,263,086 13,907,667 16,761,272 (31,562,766) 40,979,617
$ 5,313,086 $
577,790 $ (1,887,579) $ 4,784,593
$16,315,704 $ 3,106,012 $ 5,836,852 $ 5,200,617 $18,723,778 $49,182,963

8,931,149 (33,450,345)

282,284 $

499,012 $

43,074

106

CANON ANNUAL REPORT 2010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES

25. Subsequent Event
On March 11, 2011, Japan experienced a massive earthquake
and tsunami off the Paciﬁ c coast of Northeastern Japan. The
earthquake caused damage to inventories and buildings at
manufacturing facilities primarily in the Company’s Utsunomiya
Plant, and Fukushima Canon Inc., a manufacturing subsidiary. In
addition, certain distribution warehouses of the Company and
Canon Marketing Japan Inc., a sales subsidiary, located in

Northeastern Japan sustained damage to inventories. Production
operations have been suspended at certain plants of the
Company and its manufacturing subsidiaries and Canon is cur-
rently taking action to resume operations. Canon cannot esti-
mate the effect of the earthquake on its consolidated results of
operations and ﬁ nancial condition as of the issuance date of
the consolidated ﬁ nancial statements.

CANON ANNUAL REPORT 2010 107

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Canon is responsible for establishing and maintaining adequate internal control over ﬁ nancial reporting.

Internal control over ﬁ nancial reporting is deﬁ ned in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as

amended, as a process designed by, or under the supervision of, the company’s principal executive and principal ﬁ nancial ofﬁ cers

and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding

the reliability of ﬁ nancial reporting and the preparation of ﬁ nancial statements for external purposes in accordance with generally

accepted accounting principles and includes those policies and procedures that (1) pertain to the maintenance of records that in

reasonable detail accurately and fairly reﬂ ect the transactions and dispositions of the assets of the company; (2) provide reason-

able assurance that transactions are recorded as necessary to permit preparation of ﬁ nancial statements in accordance with gen-

erally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with

authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely

detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the ﬁ nancial

statements.

Because of its inherent limitations, internal control over ﬁ nancial reporting may not prevent or detect misstatements. Also, projec-

tions of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of

changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Canon’s management assessed the effectiveness of internal control over ﬁ nancial reporting as of December 31, 2010. In making

this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway

Commission in Internal Control-Integrated Framework (the “COSO criteria”).

Based on its assessment, management concluded that, as of December 31, 2010, Canon’s internal control over ﬁ nancial reporting

was effective based on the COSO criteria.

Canon’s independent registered public accounting ﬁ rm, Ernst & Young ShinNihon LLC, has issued an audit report on the effective-

ness of our internal control over ﬁ nancial reporting.

108

CANON ANNUAL REPORT 2010

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Ernst & Young ShinNihon LLC
Hibiya Kokusai Bldg.
2-2-3 Uchisaiwai-cho
Chiyoda-ku, Tokyo, Japan 100-0011

Tel : +81 3 3503 1191
Fax: +81 3 3503 1277

The Board of Directors and Stockholders of

Canon Inc.

We have audited the accompanying consolidated balance sheets of Canon Inc. and subsidiaries as of December 31, 2010 and

2009, and the related consolidated statements of income, equity, and cash ﬂ ows for each of the three years in the period ended

December 31, 2010, all expressed in Japanese yen. These ﬁ nancial statements are the responsibility of the Company’s manage-

ment. Our responsibility is to express an opinion on these ﬁ nancial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the ﬁ nancial state-

ments are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and dis-

closures in the ﬁ nancial statements. An audit also includes assessing the accounting principles used and signiﬁ cant estimates

made by management, as well as evaluating the overall ﬁ nancial statement presentation. We believe that our audits provide a rea-

sonable basis for our opinion.

In our opinion, the ﬁ nancial statements referred to above present fairly, in all material respects, the consolidated ﬁ nancial position

of Canon Inc. and subsidiaries at December 31, 2010 and 2009, and the consolidated results of their operations and their cash

ﬂ ows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting

principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Canon

Inc. and subsidiaries’ internal control over ﬁ nancial reporting as of December 31, 2010, based on criteria established in Internal

Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report

dated March 30, 2011 expressed an unqualiﬁ ed opinion thereon.

We have also recomputed the translation of the consolidated ﬁ nancial statements as of and for the year ended December 31, 2010

into United States dollars. In our opinion, the consolidated ﬁ nancial statements expressed in Japanese yen have been translated

into United States dollars on the basis described in Note 2.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CANON ANNUAL REPORT 2010 109

Ernst & Young ShinNihon LLC
Hibiya Kokusai Bldg.
2-2-3 Uchisaiwai-cho
Chiyoda-ku, Tokyo, Japan 100-0011

Tel : +81 3 3503 1191
Fax: +81 3 3503 1277

The Board of Directors and Stockholders of

Canon Inc.

We have audited Canon Inc. and subsidiaries’ internal control over ﬁ nancial reporting as of December 31, 2010, based on criteria

established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway

Commission (the COSO criteria). Canon Inc. and subsidiaries’ management is responsible for maintaining effective internal control

over ﬁ nancial reporting, and for its assessment of the effectiveness of internal control over ﬁ nancial reporting included in the

accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on

the company’s internal control over ﬁ nancial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal con-

trol over ﬁ nancial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal con-

trol over ﬁ nancial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating

effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in

the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over ﬁ nancial reporting is a process designed to provide reasonable assurance regarding the reliabili-

ty of ﬁ nancial reporting and the preparation of ﬁ nancial statements for external purposes in accordance with generally accepted

accounting principles. A company’s internal control over ﬁ nancial reporting includes those policies and procedures that (1) pertain

to the maintenance of records that, in reasonable detail, accurately and fairly reﬂ ect the transactions and dispositions of the assets

of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of ﬁ nancial

statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are

being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable

assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that

could have a material effect on the ﬁ nancial statements.

Because of its inherent limitations, internal control over ﬁ nancial reporting may not prevent or detect misstatements. Also, projec-

tions of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of

changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Canon Inc. and subsidiaries maintained, in all material respects, effective internal control over ﬁ nancial reporting as

of December 31, 2010, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the

consolidated balance sheets of Canon Inc. and subsidiaries as of December 31, 2010 and 2009, and the related consolidated state-

ments of income, equity, and cash ﬂ ows for each of the three years in the period ended December 31, 2010, all expressed in

Japanese yen, and our report dated March 30, 2011 expressed an unqualiﬁ ed opinion thereon.

110

CANON ANNUAL REPORT 2010

TRANSFER AND REGISTRAR’S OFFICE

STOCKHOLDER INFORMATION

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

Stock Exchange Listings:
Tokyo, Osaka, Nagoya, Fukuoka, Sapporo and New York
stock exchanges

Manager of the Register of Stockholders
Mizuho Trust & Banking Co., Ltd.
2-1, Yaesu 1-chome, Chuo-ku, Tokyo 103-8670, Japan

Depositary and Agent with Respect to
American Depositary Receipts for Common Shares
JPMorgan Chase Bank, N.A.

1 Chase Manhattan Plaza, Floor 58, New York, N.Y.
10005-1401, U.S.A.

American Depositary Receipts are traded on the New York
Stock Exchange (CAJ).

Ordinary General Meeting of Shareholders:
March 30, 2011, in Tokyo

Further Information:
For publications or information, please contact the
Corporate Communications Center, Canon Inc., Tokyo,
or access Canon’s Website at
www.canon.com

MAJOR CONSOLIDATED SUBSIDIARIES

MANUFACTURING
Canon Electronics Inc.
Canon Finetech Inc.
Nisca Corporation
Canon Semiconductor Equipment Inc.
Canon Ecology Industry Inc.
Canon Chemicals Inc.
Canon Components, Inc.
Canon Precision Inc.
Oita Canon Inc.
Nagasaki Canon Inc.
Nagahama Canon Inc.
Oita Canon Materials Inc.
Ueno Canon Materials Inc.
Fukushima Canon Inc.
Canon Optron, Inc.
Canon Mold Co., Ltd.
Canon Machinery Inc.
Canon ANELVA Corporation
Tokki Corporation
Canon Imaging Systems Inc.
Canon Virginia, Inc.
Canon Giessen GmbH
Canon Bretagne S.A.S.
OPTOPOL Technology S.A.
Canon Inc., Taiwan
Canon Dalian Business Machines, Inc.
Canon Zhuhai, Inc.
Canon Zhongshan Business Machines Co., Ltd.
Tianjin Canon Co., Ltd.
Canon (Suzhou) Inc.
Canon Opto (Malaysia) Sdn. Bhd.
Canon Hi-Tech (Thailand) Ltd.
Canon Engineering (Thailand) Ltd.
Canon Vietnam Co., Ltd.
Canon Electronic Business Machines (H.K.) Co., Ltd.

RESEARCH & DEVELOPMENT
Canon Research Centre France S.A.S.
Canon Information Systems Research Australia Pty. Ltd.
Canon Information Technology (Beijing) Co., Ltd.
Canon (Suzhou) System Software Inc.
Canon i-tech Inc.

CANON ANNUAL REPORT 2010 111

(As of December 31, 2010)

MARKETING & OTHER
Canon Marketing Japan Inc.
Canon System and Support Inc.
Canon IT Solutions Inc.
Canon Software Inc.
e-System Corporation
ASPAC Inc.
Canon U.S.A., Inc.
Canon Canada, Inc.
Canon Mexicana, S. de R.L. de C.V.
Canon Latin America, Inc.
Canon do Brasil Industria e Comercio Limitada
Canon Chile, S.A.
Canon Panama, S.A.
Canon Argentina, S.A.
Virtual Imaging, Inc.
Canon Business Solutions, Inc.
Canon Financial Services, Inc.
Canon Information Technology Services, Inc.
Canon Europa N.V.
Canon Europe Ltd.
Canon (UK) Ltd.
Canon Deutschland GmbH
Canon France S.A.S.
Canon Italia S.p.A.
Canon España S.A.
Canon Nederland N.V.
Canon Danmark A/S
Canon Belgium N.V./S.A.
Canon (Schweiz) AG
Canon Austria GmbH
Canon Svenska AB
Canon Oy
Canon North-East Oy
Canon Norge A.S.
Canon Ru LLC
Canon CEE GmbH
Canon Eurasia A.S.
Canon Portugal S.A.
Océ N.V.
Canon Middle East FZ-LIC
Canon South Africa Pty. Ltd.
Canon Australia Pty. Ltd.
Canon New Zealand Ltd.
Canon Finance Australia Ltd.
Canon (China) Co., Ltd.
Canon Singapore Pte. Ltd.
Canon Hongkong Co., Ltd.
Canon Marketing (Malaysia) Sdn. Bhd.
Canon Marketing (Philippines), Inc.
Canon Marketing (Thailand) Co., Ltd.
Canon India Pvt. Ltd.
Canon Korea Consumer Imaging Inc.
Canon Semiconductor Engineering Korea Inc.
Canon Semiconductor Equipment Taiwan Inc.
Canon Engineering Hong Kong Co., Ltd.
Canon Optical Industrial Equipment (Shanghai) Inc.
Canon Optical Industrial Equipment Service (Shanghai) Inc.

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

PUB. BEP020 0411N9.6 Printed in Japan