Edgar Filing: CANON INC

CANON INC.

FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

For the month of October, 2006

CANON INC.

(Translation of registrant’s name into English)

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

[Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F þ Form 40-F o

[Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o No þ

[If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82-_____

TABLE OF CONTENTS


SIGNATURES
CONSOLIDATED RESULTS FOR THE THIRD QUARTER AND THE NINE MONTHS ENDED SEPTEMBER 30, 2006

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		CANON INC.
		(Registrant)

Date October 26, 2006	By	/s/ Hiroshi Kawashimo

		(Signature)*
		Hiroshi Kawashimo
		General Manager, Finance Division
		Canon Inc.


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

The following material is included.

1.Consolidated Results For The Third Quarter And The Nine Months Ended September 30, 2006

CONSOLIDATED RESULTS FOR THE THIRD QUARTER AND
THE NINE MONTHS ENDED SEPTEMBER 30, 2006

October 26, 2006

CONSOLIDATED RESULTS FOR THE THIRD QUARTER

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

Actual

Three months

Three months

Three months

ended

ended

ended

September 30, 2006

September 30, 2005

Change(%)

September 30, 2006

(Unaudited)

(Unaudited)

(Unaudited)

Net sales

987,969

878,503

12.5

8,372,619

Operating profit

172,686

143,565

20.3

1,463,441

Income before income taxes and minority interests

180,326

155,312

16.1

1,528,186

Net income

115,587

100,617

14.9

979,551

Net income per share:

- Basic

86.80

75.60

14.8

0.74

- Diluted

86.78

75.54

14.9

0.74

CONSOLIDATED RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006

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


	Actual								Projected
	Nine months		Nine months				Nine months		Year ending
	ended		ended				ended		December 31,
	September 30, 2006		September 30, 2005		Change(%)		September 30, 2006		2006		Change(%)
	(Unaudited)		(Unaudited)				(Unaudited)
Net sales	¥	2,940,224	¥	2,634,343	+	11.6	$	24,917,153	¥	4,140,000	+	10.3
Operating profit		511,163		413,754	+	23.5		4,331,890		691,000	+	18.5
Income before income taxes and minority interests		521,371		439,045	+	18.8		4,418,398		700,000	+	14.4
Net income	¥	329,761	¥	275,885	+	19.5	$	2,794,585	¥	440,000	+	14.6

Net income per share:
- Basic	¥	247.66	¥	207.34	+	19.4	$	2.10	¥	330.43	+	14.5
- Diluted		247.57		207.12	+	19.5		2.10		—		—

Actual

As of

As of

As of

September 30, 2006

December 31, 2005

Change(%)

September 30, 2006

(Unaudited)

Total assets

4,239,166

4,043,553

4.8

35,925,136

Stockholders’ equity

2,853,200

2,604,682

9.5

24,179,661

Notes:	1.	Canon’s consolidated financial 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 JPY118=U.S.$1, the approximate exchange rate on the Tokyo Foreign Exchange Market as of September 29, 2006, solely for the convenience of the reader.

	3.	Based on the resolution of Board of Director’s meeting held on May 11, 2006, Canon has made a three-for-two stock split on July 1, 2006, for shareholders recorded in the shareholders’ register as of June 30, 2006. The basic net income per share, diluted net income per share, and projected net income per share has been calculated based on the number of outstanding shares following the implementation of the stock split. The per share information for the prior periods has been restated.


Canon Inc. Headquarter office		30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo 146-8501, Japan Phone: +81-3-3758-2111

- 1 -

Operating Results and Financial Conditions

2006 Third Quarter in Review

Looking back at the global economy in the third quarter of 2006, in the United States, despite signs that the economy slowed down somewhat, domestic demand expanded as crude oil prices and interest rates stabilized, leading to increased private-sector spending and corporate capital investment. In Europe, in addition to gradually expanding domestic demand centered on consumer spending, exports also showed signs of moderate recovery. Within Asia, China maintained a high growth rate while other economies in the region also enjoyed generally favorable performances. In Japan, the economy maintained a trend toward recovery amid increases in capital spending fueled by strong corporate performances, as well as favorable employment conditions.

As for the markets in which the Canon Group operates, within the camera segment demand for digital single-lens reflex (SLR) cameras and compact digital cameras continued to realize healthy growth during the term. Within the office imaging product market, demand for network digital multifunction devices (MFDs) remained solid amid the shift toward color. As for computer peripherals, including printers, while demand within the laser beam printer market grew for color models, and shifted rapidly within the inkjet printer market from single-function to multifunction models, the segment suffered amid severe price competition. In the optical equipment segment, although the market for projection aligners, which are used to produce liquid crystal display (LCD) panels, declined due to restrained investment by LCD manufacturers, the market for steppers, used in the production of semiconductors, indicated a trend toward moderate recovery. The average value of the yen for the third quarter was ¥116.29 to the U.S. dollar and ¥148.19 to the euro, representing year-on-year decreases of about 5% against the U.S. dollar, and 9% against the euro.

Amid these conditions, Canon’s consolidated net sales for the third quarter increased by 12.5% from the year-ago period to ¥988.0 billion (U.S.$8,373 million), boosted by a solid rise in sales of digital cameras and laser beam printers, along with the positive effects of the depreciation of the yen. The gross profit ratio improved 0.5 points year on year to reach 49.4%. The improved gross profit ratio was mainly the result of such factors as the in-house manufacturing of key components and key devices, cost-reduction efforts realized through ongoing production-reform and procurement-reform activities, and favorable sales of new high value-added products, which absorbed the negative effects of severe price competition in the consumer product market. Owing to the increase in sales and improved gross profit ratio, gross profit in the third quarter increased by 13.5% to ¥488.0 billion (U.S.$4,136 million). As for operating expenses, while third quarter R&D expenditures grew by ¥5.7 billion (U.S.$48 million) from the year-ago period to ¥70.7 billion (U.S.$599 million), the operating expense to net sales ratio improved 0.7 points year on year. This was achieved by limiting growth in selling, general and administrative expenses at the same basic level as for the corresponding period of last year, with the exception of a temporary increase in expenses related to the relocation of operation bases. Consequently, operating profit in the third quarter totaled ¥172.7 billion (U.S.$1,463 million), a year-on-year increase of 20.3%, and the operating profit ratio improved 1.2 points year on year to reach 17.5%. Other income (deductions) declined ¥4.1 billion (U.S.$35 million) due to a decrease in gains on sales of securities although interest income grew in line with the rise in the interest rate. Income before income taxes and minority interests in the third quarter totaled ¥180.3 billion (U.S.$1,528 million), a year-on-year increase of 16.1%, while third-quarter net income totaled ¥115.6 billion (U.S.$980 million), a year-on-year increase of 14.9%, representing all-time highs for both items on a quarterly basis.

Basic net income per share for the third quarter was ¥86.80 (U.S.$0.74), a year-on-year increase of ¥11.20 (U.S.$0.09). (Note: The basic net income per share calculation is based on the number of outstanding shares following the implementation of the stock split executed on July 1, 2006.)

- 2 -

Results by Product Segment

In the business machine segment, demand for network digital MFDs, which are grouped in the office imaging products sub-segment, continued to shift toward color models in the overseas market, as well as in the domestic Japanese market. Amid these conditions, in addition to low growth for color network digital MFDs due to a delay in launching new models, sales of monochrome network digital MFDs declined as demand shifted toward color models. Overall, sales of office imaging products for the third quarter dipped slightly, decreasing 1.9% year on year. In the field of computer peripherals, sales of laser beam printers were strong for color models and low-end monochrome models, while sales of consumables also recorded healthy growth, resulting in a year-on-year sales increase of 17.6%. As for inkjet printers, despite a decline in the unit sales of single-function models and severe price competition in the market, sales in value terms increased by 10.0% thanks to such factors as a significant increase in unit sales of multifunction models, such as the mid-level PIXMA MP500 and overseas new entry-level-model PIXMA MP160, as well as favorable sales growth for consumables. As a result, sales of computer peripherals for the third quarter increased 15.3% year on year. Within the field of business information products, demand for document scanners grew moderately, contributing to a sales increase of 3.2%. Collectively, sales of business machines for the third quarter totaled ¥639.5 billion (U.S.$5,419 million), a year-on-year increase of 6.9%. Operating profit for the business machines segment totaled ¥139.1 billion (U.S.$1,179 million) for the third quarter, an increase of 5.1% year on year, supported by such factors as an improvement in the expense ratio and an increase in gross profit accompanying the growth in sales.

In the camera segment, among digital SLR cameras, the new model EOS DIGITAL REBEL XTi has been well received while sales of interchangeable lenses increased significantly. Sales of compact-model digital cameras also continued to expand steadily, with healthy demand for the PowerShot SD700 IS, PowerShot SD630, and PowerShot SD600 models launched in the first half. Accordingly, unit sales of digital cameras for the third quarter expanded nearly 30% compared with the year-ago period. In the field of digital video camcorders, newly introduced HDV models for consumer use delivered strong performances, as did Mini DV and DVD models. As a result, camera sales overall for the third quarter increased by 15.7% from the year-ago period to ¥235.1 billion (U.S.$1,993 million). The gross profit ratio for the camera segment also rose substantially, boosted by such factors as favorable sales of high value-added products, along with the in-house manufacturing of key components and key devices and cost-reduction efforts realized through production-reform and procurement-reform activities. As a result, operating profit in the camera segment for the third quarter increased by 38.1% year on year to ¥67.4 billion (U.S.$571 million).

In the optical and other products segment, sales of optical products overall grew as steppers, used in the production of semiconductors, enjoyed steady demand. As for the other products included in the segment, the subsidiaries that were acquired last year contributed to significant sales growth. As a result, third quarter sales for the optical and other products segment totaled ¥113.3 billion (U.S.$960 million), a year-on-year increase of 46.9%. Operating profit for the segment for the third quarter grew by 55.6% year on year to ¥14.4 billion (U.S.$122 million), boosted by the increase in gross profit accompanying the increase in sales.

Cash Flow

In the nine months ended September 30, 2006, Canon generated cash flow from operating activities of ¥459.8 billion (U.S.$3,896 million), a year-on-year increase of ¥91.1 billion (U.S.$772 million), reflecting the substantial growth in sales and increased cash proceeds from sales, combined with a significant increase in net income. Capital expenditures totaled ¥318.8 billion (U.S.$2,702 million), which were used mainly to expand production capabilities in both domestic and overseas regions, as well as to bolster the company’s R&D-related infrastructure. Cash flow from investing activities totaled ¥328.3 billion (U.S.$2,782 million). As a result, free cash flow totaled ¥131.5 billion (U.S.$1,114 million), an improvement of ¥51.2 billion (U.S.$433 million) from the year-ago period.

Cash flow from financing activities recorded an outlay of ¥105.9 billion (U.S.$897 million), mainly resulting from the dividend payout of ¥104.3 billion (U.S.$884 million), an increase of ¥40.0 billion (U.S.$339 million) compared with the previous year. Consequently, cash and cash equivalents remained at a high level, totaling ¥1,024.5 billion (U.S.$8,682 million), an increase of ¥19.5 billion (U.S.$166 million) from the end of the previous year.

- 3 -

Outlook

As for the outlook for the global economy in the fourth quarter, although there are concerns over such issues as currency exchange rates, interest rates in major countries, and pricing of raw materials, as well as rising tensions in the Korean Peninsula, crude oil prices appear to have stabilized for the time being and the global economy is expected to continue recording favorable growth.

In the businesses in which Canon is involved, demand for digital cameras is expected to continue enjoying robust growth in Japan and overseas markets. As for network digital MFDs and laser beam printers, while demand is projected to shift toward full-color models, severe price competition and shifting demand toward lower-priced models are expected to continue. In the market for projection aligners used in the production of LCD panels, demand is expected to be weak as the industry remains in an adjustment phase. Demand for steppers, however, indicates a trend toward moderate recovery, supported by increased investment by chip manufacturers.

In light of the latest business performance, the company has revised its forecasts for the 2006 fiscal year and now anticipates consolidated net sales of ¥4,140.0 billion (U.S.$35,085 million) while maintaining its forecasts for consolidated income before income taxes and minority interests of ¥700.0 billion (U.S.$5,932 million), and consolidated net income of ¥440.0 billion (U.S.$3,729 million). As for non-consolidated forecasts, the company has revised its projections for non-consolidated net sales to ¥2,722.0 billion (U.S.$23,068 million), non-consolidated ordinary profit to ¥510.0 billion (U.S.$4,322 million), and non-consolidated net income to ¥325.0 billion (U.S.$2,754 million). These forecasts assume currency exchange rates of ¥115 to the U.S. dollar and ¥148 to the euro, representing an approximately 2% appreciation of the yen against the U.S. dollar, and an approximately 6% depreciation of the yen against the euro compared with the previous year.

- 4 -

Consolidated Outlook

Fiscal year


	Millions of yen
	Year ending						Year ended
	December 31, 2006				Change		December 31, 2005		Change (%)
	Previous Outlook (A)		Revised Outlook (B)		(B - A)		Results (C)		(B-C) / C
Net sales	¥	4,130,000	¥	4,140,000	¥	10,000	¥	3,754,191	+	10.3	%
Income before income taxes and minority interests		700,000		700,000		—		612,004	+	14.4	%
Net income		440,000		440,000		—		384,096	+	14.6	%

Non-consolidated Outlook

Fiscal year


	Millions of yen
	Year ending						Year ended
	December 31, 2006				Change		December 31, 2005		Change (%)
	Previous Outlook (A)		Revised Outlook (B)		(B - A)		Results (C)		(B-C) / C
Net sales	¥	2,700,000	¥	2,722,000	¥	22,000	¥	2,481,481	+	9.7	%
Ordinary profit		500,000		510,000		10,000		440,711	+	15.7	%
Net income		316,000		325,000		9,000		289,294	+	12.3	%

This document contains forward-looking statements with respect to future results, performance and achievements that are subject to risk and uncertainties and reflect management’s views and assumptions formed by available information. All statements other than statements of historical fact are statements that could be considered forward-looking statements. When used in this document, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “project” or “should” and similar expressions, as they relate to Canon, are intended to identify forward-looking statements. Many factors could cause the actual results, performance or achievements of Canon to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others, changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products by other companies, lack of acceptance of new products or services by Canon’s targeted customers, inability to meet efficiency and cost reduction objectives, changes in business strategy and various other factors, both referenced and not referenced in this document. A detailed description of these and other risk factors is included in Canon’s annual report on Form 20-F, which is on file with the United States Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein. Canon does not intend or assume any obligation to update these forward-looking statements.

- 5 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

1. CONSOLIDATED STATEMENTS OF INCOME

Results for the third quarter

Thousands of

Millions of yen

U.S. dollars

Three months

Three months

Three months

ended

ended

ended

September 30, 2006

September 30, 2005

Change(%)

September 30, 2006

(Unaudited)

(Unaudited)

(Unaudited)

Net sales

987,969

878,503

12.5

8,372,619

Cost of sales

499,928

448,651

4,236,678

Gross profit

488,041

429,852

13.5

4,135,941

Selling, general and administrative expenses

244,663

221,273

2,073,415

Research and development expenses

70,692

65,014

599,085

315,355

286,287

2,672,500

Operating profit

172,686

143,565

20.3

1,463,441

Other income (deductions):

Interest and dividend income

7,299

3,573

61,856

Interest expense

(560

)

(369

)

(4,746

)

Other, net

901

8,543

7,635

7,640

11,747

64,745

Income before income taxes and minority interests

180,326

155,312

16.1

1,528,186

Income taxes

61,031

51,276

517,211

Income before minority interests

119,295

104,036

1,010,975

Minority interests

3,708

3,419

31,424

Net income

115,587

100,617

14.9

979,551

Note:

Canon’s comprehensive income consists of net income, change in foreign currency translation adjustments, change in net unrealized gains (losses) on securities, change in net gains (losses) on derivative financial instruments and change in minimum pension liability adjustments. Comprehensive income for the three months ended September 30, 2006 and 2005 were JPY135,362 million (U.S.$1,147,136 thousand) and JPY112,928 million, respectively.

Results for the nine months

Thousands of

Millions of yen

U.S. dollars

Nine months

Nine months

Nine months

ended

ended

ended

September 30, 2006

September 30, 2005

Change(%)

September 30, 2006

(Unaudited)

(Unaudited)

(Unaudited)

Net sales

2,940,224

2,634,343

11.6

24,917,153

Cost of sales

1,473,470

1,354,451

12,487,034

Gross profit

1,466,754

1,279,892

14.6

12,430,119

Selling, general and administrative expenses

738,372

664,738

6,257,390

Research and development expenses

217,219

201,400

1,840,839

955,591

866,138

8,098,229

Operating profit

511,163

413,754

23.5

4,331,890

Other income (deductions):

Interest and dividend income

18,442

9,543

156,288

Interest expense

(1,185

)

(1,140

)

(10,042

)

Other, net

(7,049

)

16,888

(59,738

)

10,208

25,291

86,508

Income before income taxes and minority interests

521,371

439,045

18.8

4,418,398

Income taxes

179,845

152,544

1,524,110

Income before minority interests

341,526

286,501

2,894,288

Minority interests

11,765

10,616

99,703

Net income

329,761

275,885

19.5

2,794,585

Note:

Canon’s comprehensive income consists of net income, change in foreign currency translation adjustments, change in net unrealized gains (losses) on securities, change in net gains (losses) on derivative financial instruments and change in minimum pension liability adjustments. Comprehensive income for the nine months ended September 30, 2006 and 2005 were JPY352,837 million (U.S.$2,990,144 thousand) and JPY302,021 million, respectively.

- 6 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

2. DETAILS OF SALES

Results for the third quarter

Thousands of

Millions of yen

U.S. dollars

Three months

Three months

Three months

ended

ended

ended

Sales by product

September 30, 2006

September 30, 2005

Change(%)

September 30, 2006

(Unaudited)

(Unaudited)

(Unaudited)

Business machines:

Office imaging products

269,983

275,337

–

1.9

2,287,992

Computer peripherals

345,790

299,861

15.3

2,930,424

Business information products

23,723

22,987

3.2

201,042

639,496

598,185

6.9

5,419,458

Cameras

235,141

203,160

15.7

1,992,720

Optical and other products

113,332

77,158

46.9

960,441

Total

987,969

878,503

12.5

8,372,619

Thousands of

Millions of yen

U.S. dollars

Three months

Three months

Three months

ended

ended

ended

Sales by region

September 30, 2006

September 30, 2005

Change(%)

September 30, 2006

(Unaudited)

(Unaudited)

(Unaudited)

Japan

219,251

195,320

12.3

1,858,059

Overseas:

Americas

299,811

274,177

9.3

2,540,771

Europe

297,762

270,621

10.0

2,523,407

Other areas

171,145

138,385

23.7

1,450,382

768,718

683,183

12.5

6,514,560

Total

987,969

878,503

12.5

8,372,619

Results for the nine months

Thousands of

Millions of yen

U.S. dollars

Nine months

Nine months

Nine months

ended

ended

ended

Sales by product

September 30, 2006

September 30, 2005

Change(%)

September 30, 2006

(Unaudited)

(Unaudited)

(Unaudited)

Business machines:

Office imaging products

855,420

843,136

1.5

7,249,322

Computer peripherals

992,453

877,598

13.1

8,410,619

Business information products

78,219

74,482

5.0

662,873

1,926,092

1,795,216

7.3

16,322,814

Cameras

695,426

582,312

19.4

5,893,441

Optical and other products

318,706

256,815

24.1

2,700,898

Total

2,940,224

2,634,343

11.6

24,917,153

Millions of yen

Thousands of
U.S. dollars

Nine months

Nine months

Nine months

ended

ended

ended

Sales by region

September 30, 2006

September 30, 2005

Change(%)

September 30, 2006

(Unaudited)

(Unaudited)

(Unaudited)

Japan

665,549

611,438

8.8

5,640,246

Overseas:

Americas

894,284

792,303

12.9

7,578,678

Europe

908,705

822,287

10.5

7,700,890

Other areas

471,686

408,315

15.5

3,997,339

2,274,675

2,022,905

12.4

19,276,907

Total

2,940,224

2,634,343

11.6

24,917,153



Notes:		1. The primary products included in each of the product segments are as follows:

		Business machines:

		Office imaging products : Office network digital multifunction devices (MFDs) / Color network digital MFDs / Office copying machines / Personal-use copying machines / Full-color copying machines / etc.

		Computer peripherals : Laser beam printers / Single function inkjet printers / Inkjet multifunction peripherals / Image scanners / etc.

		Business information products : Computer information systems / Document scanners / Personal information products / etc.

		Cameras : SLR cameras / Compact cameras / Digital cameras / Digital video camcorders / etc.

		Optical and other products : Semiconductor production equipment / Mirror projection mask aligners for LCD panels / Broadcasting equipment / Medical equipment / Components / etc.

		2. The principal countries and regions included in each regional category are as follows:

		Americas: United States of America, Canada, Latin America / Europe: England, Germany, France, Netherlands / Other Areas: Asian regions, China, Oceania

- 7 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

3. SEGMENT INFORMATION BY PRODUCT

Results for the third quarter


									Thousands of
	Millions of yen								U.S. dollars
	Three months			Three months					Three months
	ended			ended					ended
	September 30, 2006			September 30, 2005			Change(%)		September 30, 2006
	(Unaudited)			(Unaudited)					(Unaudited)
Business machines
Net sales:
Unaffiliated customers	¥	639,496		¥	598,185		+	6.9	$	5,419,458
Intersegment		—			—			—		—

Total		639,496			598,185		+	6.9		5,419,458

Operating cost and expenses		500,397			465,806		+	7.4		4,240,653

Operating profit		139,099			132,379		+	5.1		1,178,805

Cameras
Net sales:
Unaffiliated customers	¥	235,141		¥	203,160		+	15.7	$	1,992,720
Intersegment		—			—			—		—

Total		235,141			203,160		+	15.7		1,992,720

Operating cost and expenses		167,751			154,365		+	8.7		1,421,618

Operating profit		67,390			48,795		+	38.1		571,102

Optical and other products
Net sales:
Unaffiliated customers	¥	113,332		¥	77,158		+	46.9	$	960,441
Intersegment		49,879			41,721		+	19.6		422,703

Total		163,211			118,879		+	37.3		1,383,144

Operating cost and expenses		148,852			109,651		+	35.8		1,261,458

Operating profit		14,359			9,228		+	55.6		121,686

Corporate and Eliminations
Net sales:
Unaffiliated customers	¥	—		¥	—			—	$	—
Intersegment		(49,879	)		(41,721	)		—		(422,703	)

Total		(49,879	)		(41,721	)		—		(422,703	)

Operating cost and expenses		(1,717	)		5,116			—		(14,551	)

Operating profit		(48,162	)		(46,837	)		—		(408,152	)

Consolidated
Net sales:
Unaffiliated customers	¥	987,969		¥	878,503		+	12.5	$	8,372,619
Intersegment		—			—			—		—

Total		987,969			878,503		+	12.5		8,372,619

Operating cost and expenses		815,283			734,938		+	10.9		6,909,178

Operating profit		172,686			143,565		+	20.3		1,463,441

Note:

General corporate expenses of JPY48,073 million (U.S.$407,398 thousand) and JPY46,850 million in the three months ended September 30, 2006 and 2005, respectively, are included in “Corporate and Eliminations.”

- 8 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

Results for the nine months


										Thousands of
	Millions of yen									U.S. dollars
	Nine months			Nine months						Nine months
	ended			ended						ended
	September 30, 2006			September 30, 2005			Change(%)			September 30, 2006
	(Unaudited)			(Unaudited)						(Unaudited)
Business machines
Net sales:
Unaffiliated customers	¥	1,926,092		¥	1,795,216			+	7.3	$	16,322,814
Intersegment		—			—				—		—

Total		1,926,092			1,795,216			+	7.3		16,322,814

Operating cost and expenses		1,492,428			1,403,384			+	6.3		12,647,695

Operating profit		433,664			391,832			+	10.7		3,675,119


Cameras
Net sales:
Unaffiliated customers	¥	695,426		¥	582,312			+	19.4	$	5,893,441
Intersegment		—			—				—		—

Total		695,426			582,312			+	19.4		5,893,441

Operating cost and expenses		519,300			471,663			+	10.1		4,400,848

Operating profit		176,126			110,649			+	59.2		1,492,593


Optical and other products
Net sales:
Unaffiliated customers	¥	318,706		¥	256,815			+	24.1	$	2,700,898
Intersegment		138,585			113,539			+	22.1		1,174,449

Total		457,291			370,354			+	23.5		3,875,347

Operating cost and expenses		419,737			340,087			+	23.4		3,557,093

Operating profit		37,554			30,267			+	24.1		318,254


Corporate and Eliminations
Net sales:
Unaffiliated customers	¥	—		¥	—				—	$	—
Intersegment		(138,585	)		(113,539	)			—		(1,174,449	)

Total		(138,585	)		(113,539	)			—		(1,174,449	)

Operating cost and expenses		(2,404	)		5,455				—		(20,373	)

Operating profit		(136,181	)		(118,994	)			—		(1,154,076	)


Consolidated
Net sales:
Unaffiliated customers	¥	2,940,224		¥	2,634,343			+	11.6	$	24,917,153
Intersegment		—			—				—		—

Total		2,940,224			2,634,343			+	11.6		24,917,153

Operating cost and expenses		2,429,061			2,220,589			+	9.4		20,585,263

Operating profit		511,163			413,754			+	23.5		4,331,890


Note:		General corporate expenses of JPY136,004 million (U.S.$1,152,576 thousand) and JPY119,010 million in the nine months ended September 30, 2006 and 2005, respectively, are included in “Corporate and Eliminations.”

- 9 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

4. CONSOLIDATED BALANCE SHEETS


										Thousands of
	Millions of yen									U.S. dollars
	As of			As of						As of
	September 30,			December 31,						September 30,
	2006			2005			Change			2006
	(Unaudited)									(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	¥	1,024,488		¥	1,004,953		¥	19,535		$	8,682,102
Marketable securities		10,297			172			10,125			87,263
Trade receivables, net		656,481			689,427			(32,946	)		5,563,398
Inventories		580,638			510,195			70,443			4,920,661
Prepaid expenses and other current assets		282,385			253,822			28,563			2,393,093

Total current assets		2,554,289			2,458,569			95,720			21,646,517
Noncurrent receivables		14,594			14,122			472			123,678
Investments		105,014			104,486			528			889,949
Property, plant and equipment, net		1,240,075			1,148,821			91,254			10,509,110
Other assets		325,194			317,555			7,639			2,755,882

Total assets	¥	4,239,166		¥	4,043,553		¥	195,613		$	35,925,136


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term loans and current portion of long-term debt	¥	13,896		¥	5,059		¥	8,837		$	117,763
Trade payables		485,819			505,126			(19,307	)		4,117,110
Income taxes		74,504			110,844			(36,340	)		631,390
Accrued expenses		261,887			248,205			13,682			2,219,381
Other current liabilities		207,228			209,394			(2,166	)		1,756,170

Total current liabilities		1,043,334			1,078,628			(35,294	)		8,841,814
Long-term debt, excluding current installments		15,457			27,082			(11,625	)		130,992
Accrued pension and severance cost		63,128			80,430			(17,302	)		534,983
Other noncurrent liabilities		48,517			52,395			(3,878	)		411,160

Total liabilities		1,170,436			1,238,535			(68,099	)		9,918,949

Minority interests		215,530			200,336			15,194			1,826,526
Stockholders’ equity:
Common stock		174,560			174,438			122			1,479,322
Additional paid-in capital		403,392			403,246			146			3,418,576
Legal reserve		43,300			42,331			969			366,949
Retained earnings		2,242,783			2,018,289			224,494			19,006,636
Accumulated other comprehensive income (loss)		(5,136	)		(28,212	)		23,076			(43,525	)
Treasury stock		(5,699	)		(5,410	)		(289	)		(48,297	)

Total stockholders’ equity		2,853,200			2,604,682			248,518			24,179,661

Total liabilities and stockholders’ equity	¥	4,239,166		¥	4,043,553		¥	195,613		$	35,925,136

Thousands of

Millions of yen

U.S. dollars

As of

As of

As of

September 30,

December 31,

September 30,

2006

2005

2006

(Unaudited)

Allowance for doubtful receivables

13,714

11,728

116,220

Accumulated depreciation

1,361,129

1,272,163

11,534,992

Accumulated other comprehensive income (loss):

Foreign currency translation adjustments

(2,640

)

(25,772

)

(22,373

)

Net unrealized gains and losses on securities

6,609

6,073

56,008

Net gains and losses on derivative instruments

(2,037

)

(1,174

)

(17,263

)

Minimum pension liability adjustments

(7,068

)

(7,339

)

(59,897

)

- 10 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

5. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Millions of yen


											Accumulated
											other						Total
	Common		Additional					Retained			comprehensive			Treasury			stockholders'
	Stock		paid-in capital			Legal reserve		earnings			income (loss)			stock			equity
Balance at December 31, 2005	¥	174,438	¥	403,246		¥	42,331	¥	2,018,289		¥	(28,212	)	¥	(5,410	)	¥	2,604,682

Conversion of convertible debt and other		122		136														258
Capital transaction by consolidated subsidiaries				10														10
Cash dividends									(104,298	)								(104,298	)
Transfers to legal reserve							969		(969	)								—

Comprehensive income
Net income									329,761									329,761
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments												23,132						23,132
Net unrealized gains and losses on securities												536						536
Net gains and losses on derivative instruments												(863	)					(863	)
Minimum pension liability adjustments												271						271

Total comprehensive income																		352,837


Repurchase of treasury stock, net															(289	)		(289	)


Balance at September 30, 2006 (Unaudited)	¥	174,560	¥	403,392		¥	43,300	¥	2,242,783		¥	(5,136	)	¥	(5,699	)	¥	2,853,200


Balance at December 31, 2004	¥	173,864	¥	401,773		¥	41,200	¥	1,699,634		¥	(101,312	)	¥	(5,263	)	¥	2,209,896

Conversion of convertible debt and other		410		410														820
Capital transaction by consolidated subsidiaries				(80	)													(80	)
Cash dividends									(64,310	)								(64,310	)
Transfers to legal reserve							848		(848	)								—
Comprehensive income
Net income									275,885									275,885
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments												28,570						28,570
Net unrealized gains and losses on securities												(2,825	)					(2,825	)
Net gains and losses on derivative instruments												(428	)					(428	)
Minimum pension liability adjustments												819						819

Total comprehensive income																		302,021


Repurchase of treasury stock, net															(105	)		(105	)

Balance at September 30, 2005 (Unaudited)	¥	174,274	¥	402,103		¥	42,048	¥	1,910,361		¥	(75,176	)	¥	(5,368	)	¥	2,448,242

Thousands of U.S. dollars

Balance at December 31, 2005

1,478,288

3,417,339

358,737

17,104,144

(239,084

)

(45,847

)

22,073,577

Conversion of convertible debt and other

1,034

1,153

2,187

Capital transaction by consolidated subsidiaries

Cash dividends

(883,881

)

(883,881

)

Transfers to legal reserve

8,212

(8,212

)

—

Comprehensive income

Net income

2,794,585

Other comprehensive income (loss), net of tax

Foreign currency translation adjustments

196,034

Net unrealized gains and losses on securities

4,542

Net gains and losses on derivative instruments

(7,314

)

(7,314

)

Minimum pension liability adjustments

2,297

Total comprehensive income

2,990,144

Repurchase of treasury stock, net

(2,450

)

(2,450

)

Balance at September 30, 2006 (Unaudited)

1,479,322

3,418,576

366,949

19,006,636

(43,525

)

(48,297

)

24,179,661

- 11 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

6. CONSOLIDATED STATEMENTS OF CASH FLOWS

Results for the nine months


							Thousands of
	Millions of yen						U.S. dollars
	Nine months			Nine months			Nine months
	ended			ended			ended
	September 30, 2006			September 30, 2005			September 30, 2006
	(Unaudited)			(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net income	¥	329,761		¥	275,885		$	2,794,585
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		187,923			158,620			1,592,568
Loss on disposal of property, plant and equipment		8,619			7,288			73,042
Deferred income taxes		8,531			7,307			72,297
Decrease in trade receivables		49,294			52,001			417,746
Increase in inventories		(57,873	)		(27,332	)		(490,449	)
Decrease in trade payables		(16,387	)		(10,438	)		(138,873	)
Decrease in income taxes		(36,088	)		(47,186	)		(305,831	)
Increase in accrued expenses		6,455			15,044			54,703
Decrease in accrued pension and severance cost		(19,110	)		(10,496	)		(161,949	)
Other, net		(1,371	)		(52,030	)		(11,619	)

Net cash provided by operating activities		459,754			368,663			3,896,220

Cash flows from investing activities:
Purchases of fixed assets		(318,790	)		(289,031	)		(2,701,610	)
Proceeds from sale of fixed assets		12,233			7,469			103,669
Purchases of available-for-sale securities		(7,497	)		(1,591	)		(63,534	)
Proceeds from sale of available-for-sale securities		3,046			11,090			25,814
Acquisitions of subsidiaries, net of cash acquired		(605	)		(11,779	)		(5,127	)
Purchases of other investments		(7,407	)		(5,137	)		(62,771	)
Other, net		(9,257	)		650			(78,449	)

Net cash used in investing activities		(328,277	)		(288,329	)		(2,782,008	)

Cash flows from financing activities:

Proceeds from issuance of long-term debt		943			964			7,992
Repayments of long-term debt		(4,514	)		(9,673	)		(38,254	)
Increase (decrease) in short-term loans		(692	)		1,501			(5,864	)
Dividends paid		(104,298	)		(64,310	)		(883,881	)
Other, net		2,695			(3,497	)		22,838

Net cash used in financing activities		(105,866	)		(75,015	)		(897,169	)

Effect of exchange rate changes on cash and cash equivalents		(6,076	)		10,013			(51,492	)

Net increase in cash and cash equivalents		19,535			15,332			165,551
Cash and cash equivalents at beginning of period		1,004,953			887,774			8,516,551

Cash and cash equivalents at end of period	¥	1,024,488		¥	903,106		$	8,682,102

- 12 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

7. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

(1) NUMBER OF GROUP COMPANIES


	September 30, 2006		December 31, 2005		Change
Subsidiaries		214		200		14
Affiliates		12		13		(1	)

Total		226		213		13

CHANGES IN GROUP OF ENTITIES


Subsidiaries
Addition:		21 Companies
Removal:		7 Companies

Affiliates (Carried at Equity Basis)
Removal:		1 Company

(2) SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements reflect the adjustments which management believes are necessary to conform them with U.S. generally accepted accounting principles, except for the segment information, as required by Statement of Financial Accounting Standards No.131, “Disclosures about Segments of an Enterprise and Related Information.”

8. OTHER

We have engaged Ernst & Young ShinNihon to perform a review of the consolidated statements of income, the consolidated balance sheets, the consolidated statements of the stockholders’ equity and the consolidated statements of cash flows as of and for the three and nine months ended September 30, 2006. This review engagement was partially performed in accordance with Statement of Auditing Standards No.100, “Interim Financial Information” (“SAS 100”), established by the American Institute of Certified Public Accountants, and the consolidated interim financial information does not include certain disclosures, such as notes to financial statements, compared with that required under U.S. generally accepted accounting principles and by the United States Securities and Exchange Commission.

- 13 -

Canon Inc.
October 26, 2006

CONSOLIDATED FINANCIAL RESULTS FOR
THE THIRD QUARTER ENDED SEPTEMBER 30, 2006
SUPPLEMENTARY REPORT

TABLE OF CONTENTS


		PAGE
1.	SALES BY REGION AND PRODUCT	S1
2.	SEGMENT INFORMATION BY PRODUCT	S2
3.	OTHER INCOME / DEDUCTIONS	S2
4.	SALES COMPOSITION BY PRODUCT	S3
5.	SALES GROWTH IN LOCAL CURRENCY	S3
6.	P&L SUMMARY (4th Quarter 2006/Projection)	S4
7.	PROFITABILITY	S4
8.	IMPACT OF FOREIGN EXCHANGE RATES	S4
9.	STATEMENTS OF CASH FLOWS	S4
10.	R&D EXPENDITURE	S5
11.	CAPITAL EXPENDITURE & DEPRECIATION AND AMORTIZATION	S5
12.	INVENTORIES	S5
13.	DEBT RATIO	S5
14.	OVERSEAS PRODUCTION RATIO	S5
15.	NUMBER OF EMPLOYEES	S5

Canon Inc.

1. SALES BY REGION AND PRODUCT

(Millions of yen)


	2006						2005						Change year over year
			4th quarter		Year
	3rd quarter		(P)		(P)		3rd quarter		4th quarter		Year		3rd quarter			4th quarter			Year
Japan
Business machines		140,645		176,881		619,300		138,824		169,499		612,832		+1.3	%		+4.4	%		+1.1	%
Office imaging products		87,242		96,703		362,800		87,260		84,885		357,689		-0.0	%		+13.9	%		+1.4	%
Computer peripherals		37,972		62,928		187,700		36,191		64,627		183,727		+4.9	%		-2.6	%		+2.2	%
Business information products		15,431		17,250		68,800		15,373		19,987		71,416		+0.4	%		-13.7	%		-3.7	%
Cameras		34,275		41,151		140,100		33,667		36,220		127,886		+1.8	%		+13.6	%		+9.6	%
Optical and other products		44,331		54,019		178,200		22,829		39,048		115,487		+94.2	%		+38.3	%		+54.3	%

Total		219,251		272,051		937,600		195,320		244,767		856,205		+12.3	%		+11.1	%		+9.5	%

Overseas
Business machines		498,851		573,327		2,057,000		459,361		537,686		1,889,569		+8.6	%		+6.6	%		+8.9	%
Office imaging products		182,741		241,077		830,400		188,077		225,219		795,551		-2.8	%		+7.0	%		+4.4	%
Computer peripherals		307,818		321,219		1,188,900		263,670		302,681		1,061,179		+16.7	%		+6.1	%		+12.0	%
Business information products		8,292		11,031		37,700		7,614		9,786		32,839		+8.9	%		+12.7	%		+14.8	%
Cameras		200,866		296,723		893,200		169,493		260,654		751,300		+18.5	%		+13.8	%		+18.9	%
Optical and other products		69,001		57,675		252,200		54,329		76,741		257,117		+27.0	%		-24.8	%		-1.9	%

Total		768,718		927,725		3,202,400		683,183		875,081		2,897,986		+12.5	%		+6.0	%		+10.5	%

Americas
Business machines		211,464		232,019		857,900		195,487		224,815		795,268		+8.2	%		+3.2	%		+7.9	%
Office imaging products		81,700		102,480		363,900		88,124		99,491		353,384		-7.3	%		+3.0	%		+3.0	%
Computer peripherals		125,150		124,394		474,800		103,341		120,750		425,877		+21.1	%		+3.0	%		+11.5	%
Business information products		4,614		5,145		19,200		4,022		4,574		16,007		+14.7	%		+12.5	%		+19.9	%
Cameras		75,304		128,708		357,500		68,533		115,569		308,667		+9.9	%		+11.4	%		+15.8	%
Optical and other products		13,043		16,289		55,900		10,157		13,263		42,015		+28.4	%		+22.8	%		+33.0	%

Total		299,811		377,016		1,271,300		274,177		353,647		1,145,950		+9.3	%		+6.6	%		+10.9	%

Europe
Business machines		212,212		265,507		909,500		196,343		243,712		838,081		+8.1	%		+8.9	%		+8.5	%
Office imaging products		77,285		112,909		370,900		77,550		103,566		357,188		-0.3	%		+9.0	%		+3.8	%
Computer peripherals		131,983		147,622		523,200		115,947		135,618		466,965		+13.8	%		+8.9	%		+12.0	%
Business information products		2,944		4,976		15,400		2,846		4,528		13,928		+3.4	%		+9.9	%		+10.6	%
Cameras		77,472		119,120		359,600		68,709		106,227		316,769		+12.8	%		+12.1	%		+13.5	%
Optical and other products		8,078		9,868		34,100		5,569		9,032		26,408		+45.1	%		+9.3	%		+29.1	%

Total		297,762		394,495		1,303,200		270,621		358,971		1,181,258		+10.0	%		+9.9	%		+10.3	%

Other areas
Business machines		75,175		75,801		289,600		67,531		69,159		256,220		+11.3	%		+9.6	%		+13.0	%
Office imaging products		23,756		25,688		95,600		22,403		22,162		84,979		+6.0	%		+15.9	%		+12.5	%
Computer peripherals		50,685		49,203		190,900		44,382		46,313		168,337		+14.2	%		+6.2	%		+13.4	%
Business information products		734		910		3,100		746		684		2,904		-1.6	%		+33.0	%		+6.7	%
Cameras		48,090		48,895		176,100		32,251		38,858		125,864		+49.1	%		+25.8	%		+39.9	%
Optical and other products		47,880		31,518		162,200		38,603		54,446		188,694		+24.0	%		-42.1	%		-14.0	%

Total		171,145		156,214		627,900		138,385		162,463		570,778		+23.7	%		-3.8	%		+10.0	%

Total
Business machines		639,496		750,208		2,676,300		598,185		707,185		2,502,401		+6.9	%		+6.1	%		+6.9	%
Office imaging products		269,983		337,780		1,193,200		275,337		310,104		1,153,240		-1.9	%		+8.9	%		+3.5	%
Computer peripherals		345,790		384,147		1,376,600		299,861		367,308		1,244,906		+15.3	%		+4.6	%		+10.6	%
Business information products		23,723		28,281		106,500		22,987		29,773		104,255		+3.2	%		-5.0	%		+2.2	%
Cameras		235,141		337,874		1,033,300		203,160		296,874		879,186		+15.7	%		+13.8	%		+17.5	%
Optical and other products		113,332		111,694		430,400		77,158		115,789		372,604		+46.9	%		-3.5	%		+15.5	%

Total		987,969		1,199,776		4,140,000		878,503		1,119,848		3,754,191		+12.5	%		+7.1	%		+10.3	%

(P)=Projection

-S1-

Canon Inc.

2. SEGMENT INFORMATION BY PRODUCT

(Millions of yen)


	2006									2005									Change year over year
				4th quarter			Year
	3rd quarter			(P)			(P)			3rd quarter			4th quarter			Year			3rd quarter			4th quarter			Year
Business machines
Unaffiliated customers		639,496			750,208			2,676,300			598,185			707,185			2,502,401			+6.9	%		+6.1	%		+6.9	%
Intersegment		—			—			—			—			—			—			—			—			—

Total sales		639,496			750,208			2,676,300			598,185			707,185			2,502,401			+6.9	%		+6.1	%		+6.9	%

Operating profit		139,099			159,336			593,000			132,379			150,196			542,028			+5.1	%		+6.1	%		+9.4	%
% of sales		21.8	%		21.2	%		22.2	%		22.1	%		21.2	%		21.7	%		—			—			—
Cameras
Unaffiliated customers		235,141			337,874			1,033,300			203,160			296,874			879,186			+15.7	%		+13.8	%		+17.5	%
Intersegment		—			—			—			—			—			—			—			—			—

Total sales		235,141			337,874			1,033,300			203,160			296,874			879,186			+15.7	%		+13.8	%		+17.5	%

Operating profit		67,390			79,974			256,100			48,795			63,057			173,706			+38.1	%		+26.8	%		+47.4	%
% of sales		28.7	%		23.7	%		24.8	%		24.0	%		21.2	%		19.8	%		—			—			—
Optical and other products
Unaffiliated customers		113,332			111,694			430,400			77,158			115,789			372,604			+46.9	%		-3.5	%		+15.5	%
Intersegment		49,879			45,015			183,600			41,721			44,575			158,114			+19.6	%		+1.0	%		+16.1	%

Total sales		163,211			156,709			614,000			118,879			160,364			530,718			+37.3	%		-2.3	%		+15.7	%

Operating profit		14,359			9,846			47,400			9,228			8,553			38,820			+55.6	%		+15.1	%		+22.1	%
% of sales		8.8	%		6.3	%		7.7	%		7.8	%		5.3	%		7.3	%		—			—			—
Corporate and Eliminations
Unaffiliated customers		—			—			—			—			—			—			—			—			—
Intersegment		-49,879			-45,015			-183,600			-41,721			-44,575			-158,114			—			—			—

Total sales		-49,879			-45,015			-183,600			-41,721			-44,575			-158,114			—			—			—

Operating profit		-48,162			-69,319			-205,500			-46,837			-52,517			-171,511			—			—			—
Consolidated
Unaffiliated customers		987,969			1,199,776			4,140,000			878,503			1,119,848			3,754,191			+12.5	%		+7.1	%		+10.3	%
Intersegment		—			—			—			—			—			—			—			—			—

Total sales		987,969			1,199,776			4,140,000			878,503			1,119,848			3,754,191			+12.5	%		+7.1	%		+10.3	%

Operating profit		172,686			179,837			691,000			143,565			169,289			583,043			+20.3	%		+6.2	%		+18.5	%
% of sales		17.5	%		15.0	%		16.7	%		16.3	%		15.1	%		15.5	%		—			—			—

(P)=Projection

3. OTHER INCOME / DEDUCTIONS

(Millions of yen)


	2006						2005						Change year over year
			4th quarter		Year
	3rd quarter		(P)		(P)		3rd quarter		4th quarter		Year		3rd quarter		4th quarter		Year
Interest and dividend, net		6,739		5,943		23,200		3,204		4,108		12,511		+3,535		+1,835		+10,689
Forex gain / loss		-2,428		-9,033		-26,100		-550		-2,262		-3,710		-1,878		-6,771		-22,390
Equity earnings / loss of affiliated companies		715		91		2,900		-589		174		1,646		+1,304		-83		+1,254
Other, net		2,614		1,791		9,000		9,682		1,650		18,514		-7,068		+141		-9,514

Total		7,640		-1,208		9,000		11,747		3,670		28,961		-4,107		-4,878		-19,961

(P)=Projection

-S2-

4. SALES COMPOSITION BY PRODUCT


	2006									2005
				4th quarter			Year
	3rd quarter			(P)			(P)			3rd quarter			4th quarter			Year
Office imaging products
Monochrome copying machines		52	%		49	%		52	%		56	%		55	%		56	%
Color copying machines		30	%		34	%		31	%		29	%		29	%		28	%
Others		18	%		17	%		17	%		15	%		16	%		16	%
Computer peripherals
Laser beam printers		76	%		67	%		73	%		75	%		67	%		71	%
Inkjet printers		23	%		32	%		26	%		24	%		32	%		27	%
(includes inkjet MFPs)
Others		1	%		1	%		1	%		1	%		1	%		2	%
Business information products
Personal computers		65	%		64	%		65	%		67	%		69	%		69	%
Others		35	%		36	%		35	%		33	%		31	%		31	%
Cameras
Film cameras / Lenses		16	%		15	%		16	%		18	%		17	%		17	%
Digital cameras		74	%		75	%		74	%		70	%		72	%		72	%
Video cameras		10	%		10	%		10	%		12	%		11	%		11	%
Optical and other products
Semiconductor production equipment		52	%		50	%		51	%		62	%		58	%		64	%
Others		48	%		50	%		49	%		38	%		42	%		36	%

(P)=Projection

5. SALES GROWTH IN LOCAL CURRENCY (Year over year)


	2006
				4th quarter			Year
	3rd quarter			(P)			(P)
Business machines
Japan		+1.3	%		+4.4	%		+1.1	%
Overseas		+2.6	%		+5.8	%		+3.6	%

Total		+2.3	%		+5.4	%		+3.0	%

Cameras
Japan		+1.8	%		+13.6	%		+9.6	%
Overseas		+11.7	%		+12.5	%		+13.6	%

Total		+10.1	%		+12.6	%		+13.0	%

Optical and other products
Japan		+94.2	%		+38.3	%		+54.3	%
Overseas		+23.3	%		-25.4	%		-4.7	%

Total		+44.3	%		-3.9	%		+13.6	%

Total
Japan		+12.3	%		+11.1	%		+9.5	%
Overseas		+6.5	%		+5.0	%		+5.5	%
Americas		+4.6	%		+8.8	%		+6.3	%
Europe		+1.7	%		+4.9	%		+4.3	%
Other areas		+19.7	%		-2.9	%		+6.4	%

Total		+7.8	%		+6.4	%		+6.4	%

(P)=Projection

-S3-

Canon Inc.

6. P&L SUMMARY (4th Quarter 2006/Projection)

(Millions of yen)


	2006		2005		Change year
	4th quarter(P)		4th quarter		over year
Net sales		1,199,776		1,119,848		+7.1	%
Operating profit		179,837		169,289		+6.2	%
Income before income taxes and minority interests		178,629		172,959		+3.3	%
Net income		110,239		108,211		+1.9	%

(P)=Projection

7. PROFITABILITY


	2006						2005
	1st-3rd quarter			Year(P)			1st-3rd quarter			Year
ROE		16.1	%		15.8	%		15.8	%		16.0	%
ROA		10.6	%		10.3	%		10.0	%		10.1	%

(P)=Projection

8. IMPACT OF FOREIGN EXCHANGE RATES

(1)

Exchange rates

(Yen)


	2006						2005
	3rd quarter		4th quarter(P)		Year(P)		3rd quarter		4th quarter		Year
Yen/US$		116.29		115.00		115.61		111.23		117.39		110.58
Yen/Euro		148.19		148.00		145.35		135.73		139.46		137.04

(P)=Projection

(2)

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

(Billions of yen)

2006

3rd quarter

4th quarter(P)

Year(P)

US$

+16.3

-10.1

+59.0

Euro

+18.4

+18.1

+57.7

Other currencies

+1.4

+0.5

+4.5

Total

+36.1

+8.5

+121.2

(P)=Projection

(3)

Impact of foreign exchange rates per yen

(Billions of yen)


	2006
	4th quarter(P)
On sales
US$		4.2
Euro		2.2
On operating profit
US$		2.4
Euro		1.7

(P)=Projection

9. STATEMENTS OF CASH FLOWS

(Millions of yen)


	2006				2005
	3rd quarter		Year(P)		3rd quarter		Year
Net cash provided by operating activities
Net income		115,587		440,000		100,617		384,096
Depreciation and amortization		79,768		245,000		60,064		225,941
Other, net		-59,479		5,000		-49,979		-4,359

Total		135,876		690,000		110,702		605,678

Net cash used in investing activities		-117,980		-430,000		-107,273		-401,141
Free cash flow		17,896		260,000		3,429		204,537
Net cash used in financing activities		-48,034		-105,400		-36,606		-93,939
Effect of exchange rate changes on cash and cash equivalents		-537		-5,200		362		6,581
Net change in cash and cash equivalents		-30,675		149,400		-32,815		117,179
Cash and cash equivalents at end of period		1,024,488		1,154,400		903,106		1,004,953

(P)=Projection

-S4-

Canon Inc.

10. R&D EXPENDITURE

(Millions of yen)


	2006									2005
	3rd quarter			4th quarter(P)			Year(P)			3rd quarter			4th quarter			Year
Business machines		23,869			—			—			25,359			34,136			117,219
Cameras		10,487			—			—			9,932			10,855			39,746
Optical and other products		36,336			—			—			29,723			40,085			129,511

Total		70,692			96,781			314,000			65,014			85,076			286,476

% of sales		7.2	%		8.1	%		7.6	%		7.4	%		7.6	%		7.6	%

(P)=Projection

11. CAPITAL EXPENDITURE & DEPRECIATION AND AMORTIZATION

(Millions of yen)


	2006						2005
	3rd quarter		4th quarter(P)		Year(P)		3rd quarter		4th quarter		Year
Capital expenditure		120,256		131,448		405,000		109,044		97,470		383,784
Depreciation and amortization		79,768		57,077		245,000		60,064		67,321		225,941

(P)=Projection

12. INVENTORIES

(1)

Inventories

(Millions of yen)


	2006		2005
	Sep.30		Dec.31		Difference
Business machines		313,717		267,121		+46,596
Cameras		111,394		88,831		+22,563
Optical and other products		155,527		154,243		+1,284

Total		580,638		510,195		+70,443

(2)

Inventories/Sales*

(Days)


	2006		2005
	Sep.30		Dec.31		Difference
Business machines		44		37		+7
Cameras		40		32		+8
Optical and other products		130		146		-16

Total		53		47		+6


*Index based on the previous six months sales.

13. DEBT RATIO


	2006			2005
	Sep.30			Dec.31			Difference
Total debt / Total assets		0.7	%		0.8	%		-0.1	%

14. OVERSEAS PRODUCTION RATIO


	2006			2005
	1st-3rd quarter			Year
Overseas production ratio		40	%		40	%

15. NUMBER OF EMPLOYEES


	2006		2005
	Sep.30		Dec.31		Difference
Japan		50,443		48,637		+1,806
Overseas		72,814		66,946		+5,868
Total		123,257		115,583		+7,674

-S5-

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