August

Date….

       We would like to present our report for the summary of the first half of our 113th business term (from January 1, 2013 to June 30, 2013).

       With regard to the global economy during the first half of the current business term, the U.S. economy recovered ahead of other developed countries due mainly to increased personal consumption on the back of improvements in the housing market and employment, while the European economy remained extremely difficult. The Chinese economy continued to grow although at a slower pace than before and many of the other emerging economies also showed a slower growth rate. The Japanese economy showed signs of recovery due to the improvement in the export environment and the effect of various policy measures taken by the government, and other factors. In addition, the foreign exchange markets saw a significant depreciation of the yen against both the U.S. dollar and euro as compared with the first half of the previous business term due to the effect of, among others, monetary easing in Japan.

       The Canon Group, in the current business term, which is the third year of Phase IV (2011 to 2015) of our “Excellent Global Corporation Plan,” aims at securing sales revenue and profit growth under the basic policy of “Decisively implement reforms and achieve sound business growth in the face of the current turbulent business environment.” To this end, we made efforts to strengthen the direct sales and the solution and service business in the office products domain as well as sales in emerging markets in the consumer products domain, in addition to strengthening the “CINEMA EOS SYSTEM” and network camera systems as a new business. We also took various other measures including efforts to expand in-house production of parts and production equipment and to reduce cost further.

       Our financial performance, which had been extremely difficult in the previous business term and at the beginning of the current business term, turned into recovery trend in April 2013, mainly as a result of our efforts outlined above, when the weaker yen started to have a significant effect. As a result, regarding the earnings for the first half of the current business term, on a consolidated basis, we recorded net sales of 1,783.5 billion yen (up 3.2% from the first half of 2012), income before income taxes of 159.1 billion yen (down 10.7%), and net income attributable to Canon Inc. of 107.4 billion yen (down 5.2%). Also on a non-consolidated basis, we recorded net sales of 1,013.0 billion yen (down 6.5%), ordinary profit of 132.1 billion yen (up 0.7%), and net income of 94.0 billion yen (up 7.0%).

       For the interim dividend, we have decided to pay 65.00 yen per share, which is equivalent to a half of the annual dividend for the previous business term (including special dividend), from the perspective of ensuring stable returns to shareholders. The payment starts on August 27.

       As for business conditions in the second half, we expect that the overall economy will show increasing signs of gradual recovery despite certain concerns including the prolonged economic downturn in Europe and uncertainty in the Chinese economy.

       Under these conditions, the Canon Group remains united in its commitment to further improve our business results.

       We look forward to your continued support and encouragement.

August, 2013

        Index

To Our Shareholders

Long-Term Management Plan

Excellent Global Corporation Plan
Phase IV (2011~2015)

Financial Information

Highlights of Financial Results

Business Conditions by Operations

1 Office Business Unit

2 Imaging System Business Unit

3 Industry and Others Business Unit

TOPICS

As a Member of Society

Consolidated Financial Statements

Consolidated Financial Statements

Corporate Information

Corporate Profile

Shares of the Company

Information for Shareholders

2 

Long-Term Management Plan

Excellent Global Corporation Plan

Phase IV (2011~2015)

“Aiming for the Summit—Speed & Sound Growth—”

Seeking transformation and continued growth, Canon has established six main strategies

Canon has been implementing its Excellent Global Corporation Plan since 1996

with the goal of becoming a truly excellent global company admired and respected all over the world.

Following its steady implementation of Phases I, II and III, Canon started Phase IV in 2011.

Having established six main strategies, Canon is undertaking a wide variety of initiatives to achieve its targets for 2015.

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

2.   Developing new business through globalized diversification and establishing the Three Regional Headquarters management system

Canon has not only boosted the already unassailable lead of its digital cameras with further development of the “EOS” series, but also strengthened its commercial printing business through solutions centered on “imageRUNNER ADVANCE” and integration with Océ. Canon also entered the motion picture production industry with the launch of “CINEMA EOS SYSTEM.”

With the aim of developing new business, Canon is carrying out advanced medical research in partnership with Kyoto University, while Canon’s U.S. subsidiary is engaged in research into genetic diagnostic devices. Canon has also developed and launched the MR system that will make a significant contribution to efficiency in product design using computer graphics.

Financial Information

1

The business environment in the first half of the current business term remained difficult, mainly because of slower growth in China and other emerging countries in addition to prolonged economic stagnation in Europe. Despite these circumstances, we proactively expanded sales by launching new products and as a result, our consolidated net sales increased 3.2% in comparison to the first half of 2012. The depreciation of the yen also had an effect.

2

Despite Group-wide efforts to bring down costs and reduce expenses, net income attributable to Canon Inc. declined 5.2% in comparison to the first half of 2012 on a consolidated basis.

Change in Profits

Business Conditions by Operations 1

Office Business Unit

Despite sluggish demand for monochrome machines, the overall market size for office multifunction devices remained at about the same level as in the previous business term owing to the increased demand for color machines. Although the conditions in the market in Japan were even more difficult due to intensified price competition, the “imageRUNNER ADVANCE C2200” low to mid-speed color machine series delivered favorable sales performance. In the Americas, where our sales had been struggling since the previous business term particularly in Latin America, we made efforts to regain sales by strengthening the product lines of the second generation of the “imageRUNNER ADVANCE” color machines as well as the A4 monochrome machines. In Europe, in addition to the “C2200” series, the “imageRUNNER ADVANCE C5200” series, our main products in the medium to high-speed color machine segment, enjoyed high reputation in the market and their sales were also solid. In China, although overall sales declined from the first half of the previous business term due to the slump in monochrome machines, sales of color machines steadily increased.

The market for digital production printing systems showed solid performances in general and, in particular, demand for light-production color machines increased significantly. Under such circumstances, sales of a new product “imagePRESS C1+II” grew steadily in the Japanese market. In Asia, sales in South Korea were particularly brisk. In addition, Canon and Océ products were received favorably in “China Print,” an international printing technology exhibition held every four years.

Sales of high speed continuous feed printers and wide-format printers increased from the first half of the previous business term due partly to the brisk sales of the “Océ ColorStream 3000” series manufactured by Océ.

imageRUNNER ADVANCE C2230F

A3 low to mid-speed color multifunction device with compact design and a start-up time substantially shorter than its predecessors. It is equipped with high-speed scanning and has superior environmental performance.

* Shown equipped with options including “Saddle Finisher-AA2.”

imagePRESS C1+ll

Production printing system for designs realizing high-quality images that approach offset printing through the use of technology such as Canon’s own “V-Toner.”

Business Conditions by Operations 2

Imaging System Business Unit

Interchangeable lens digital cameras performed well both in the domestic and overseas markets. The Canon Group continued, from the previous year, to make efforts to expand the sales of 35mm full-frame sensor models including the “EOS 5D Mark III” and the “EOS 6D” advanced amateur models. In addition, the “EOS Kiss X7 (EOS Rebel SL1)” and the “EOS Kiss X7i (EOS Rebel T5i)” entry-level models were launched in April 2013 to stimulate demand. Unit sales of interchangeable lens digital cameras decreased in the overseas markets, but increased steadily in the domestic market. As a result, the product retained its No. 1 market share position in worldwide unit sales. Sales of interchangeable lenses, particularly the zoom lens products such as the “EF 24-70mm F/2.8L II USM” launched in September 2012, were favorable and the cumulative production volume of the “EF LENS” series, which had reached 80 million units in August 2012, reached 90 million units in May 2013. As a result of the above, the sales of interchangeable lens digital cameras increased.

As the market for digital compact cameras shrank due to, among others, the effect of the increased popularity of smartphones, the sales in the market decreased despite the efforts to bolster sales by launching new products including the “PowerShot SX280 HS” and the “IXY 90F,” which are equipped with a zoom lens with a high zoom ratio that is not available on smartphones.

With regard to the “CINEMA EOS SYSTEM” digital cinema cameras, which have been launched one after another since 2012 and established high reputation in the motion picture production industry, we worked to increase the appeal of the product by, for example, improving user convenience through a wider selection of related software available to users.

In the broadcast equipment market, sales of HDTV compatible field zoom lens suitable for live broadcasts such as sporting events were particularly strong.

EOS Kiss X7 (EOS Rebel SL1)

Entry-level model digital SLR camera equipped with a CMOS sensor with approximately 18.0 megapixels and a “Hybrid CMOS AF II,” which makes it possible to substantially increase the AF area, as well as an ultra-compact body. It offers a wide variety of shooting modes function.

PowerShot N

Equipped with “Creative Shot,” by which the camera analyses a scene and automatically adjusts the composition, color and light in one exposure, automatically generating other five types of images. Featuring a distinctive design, this is a model with a new concept.

Business Conditions by Operations 3

Industry and Others Business Unit

Turning to semiconductor lithography equipment, capital investment in the production facilities of image sensors for mobile devices was solid in response to the booming smartphone and tablet PC markets, whereas the memory manufacturers remained reluctant in making capital investment. On balance, the overall market condition was weak during the first half of the current business term. Consequently, sales of the “FPA-5510iZ” i-line steppers for image sensors, in which we have strength, were favorable, while sales of memory-related equipment were sluggish. As a result, both unit sales and sales revenues were down from the first half of the previous business term.

As for flat panel display (FPD) lithography equipment, demand was mainly for the small to mid-sized panels used in smartphones and tablet PCs, while investment in equipment used to manufacture large-sized panels, at which Canon excels, was weak. Sales, therefore, were down for the term.

In medical equipment, sales of the optical coherence tomography (OCT) product launched in September 2012 contributed significantly to the overall sales of ophthalmic equipment, while sales from the mainstay digital radiography systems declined due to the intensified competition although unit sales steadily increased particularly in the U.S., where large volume contracts were concluded.

In view of the monitoring camera market that is rapidly growing on the back of the increased security awareness, we are working on the fundamental strengthening of the network camera systems business. Specifically, we promoted the sales of our first full HD compatible products that we launched in response to the rising demand for high image quality products, in addition to the sales of predecessors.

FPA-6300ES6a

Semiconductor lithography equipment equipped with a KrF (krypton fluoride) excimer laser, which realizes throughput at a rate of approximately 1.6-time above its predecessor and the industry’s highest level of overlay accuracy.

Network Camera System

Full HD compatible surveillance network cameras such as the VB-H41 (pictured top center), which has best-in-class low-light performance.

As a Member of Society

Canon U.S.A., Inc. and NCMEC (National Center for Missing & Exploited Children) in the U.S. have been jointly engaged in activities focused on finding missing children, as well as providing education to help promote children’s safety and prevent their abduction, for over a decade.

Canon has donated to NCMEC cameras, printers and other products which help find missing children.

In January, Canon made a donation of $427,625 through a golf tournament held in Las Vegas.

A workshop using artworks from the “Tsuzuri Project” was held by Joe Price, a world-renowned collector of Japanese paintings, at Sendai City Museum in March 2013. The workshop was for elementary school students afflicted by the Great East Japan Earthquake.

Mr. Price’s main hope was to give the children experience of appreciating paintings. Activities included having the children imagine what was on the closed part of a partially opened folding screen and looking at paintings in natural light with the electric lights turned off. Although it was a short period of time, the children were able to explore paintings with Mr. Price and experience the beauty of Japanese paintings.

Consolidated Financial Statements

Corporate Information

Corporate Profile (As of June 30, 2013)

            Number of Shares Held             

            (thousands of shares)            

            Shareholding Ratio             

            (%)             

  The Master Trust Bank of Japan, Ltd. (Trust Account)

  Japan Trustee Services Bank, Ltd. (Trust Account)

  The Dai-ichi Life Insurance Company, Limited

  Nomura Securities Co., Ltd.

  State Street Bank and Trust Company 505223

  SSBT OD05 OMNIBUS ACCOUNT – TREATY CLIENTS

  Moxley and Co. LLC

  State Street Bank and Trust Company 505225

  Deutsche Securities Inc.

  Sompo Japan Insurance Inc.

Notes:

Shareholding ratio is calculated by deducting the number of treasury shares (180,967 thousand shares) from total shares issued.

With respect to The Dai-ichi Life Insurance Company, Limited, in addition to the above, there are 6,180 thousand shares of the Company’s stock included in trust property relating to retirement allowance trust.

Should you have any inquiries about the following procedures pertaining to shares of Canon Inc., please contact your securities company etc.

Should you have any inquiries about the above procedures in cases where your shares are managed in a special account (tokubetsu koza) (*), or about procedures for payment of accrued dividends or the issuance of documents such as statements of payment, Mizuho Trust & Banking Co., Ltd. handles these procedures, so please contact as shown below.

Website    

Mizuho Trust & Banking Co., Ltd.

(procedures pertaining to shares)

http://www.mizuho-tb.co.jp/daikou/index.html

Phone

0120-288-324 (Toll free, available in Japan only)

Operating hours: 9:00 – 17:00

(Monday - Friday except national holidays)

Address

Stock Transfer Agency Department of Mizuho Trust & Banking Co., Ltd.

8-4, Izumi 2-chome, Suginami-ku, Tokyo 168-8507

* A special account is an account for the management of shares that are not managed at a securities company etc. For the sale of shares that are managed in a special account, it is necessary to carry out procedures for the transfer of such shares to an account at a securities company etc. Should you have any inquiries about such procedures, please contact Mizuho Trust & Banking Co., Ltd.

For those shareholders who receive dividends by way of “Receipt of Dividend”

The way to receive dividends is shown on the backside of “Receipt of Dividend.”

We recommend one of the following three methods as a safer and more expeditious way to receive dividends. For more information, please ask your securities company etc.

i)           The method of depositing the dividends of all the issues, including shares of Canon Inc., that are managed by a shareholder using securities company accounts into said securities company accounts. (System of allocating dividends to securities company accounts in proportion to the number of shares held in respective accounts)

ii)          The method of transferring the dividends of all the issues, including shares of Canon Inc., held by a shareholder into the same bank deposit account.

(System of receiving dividends in the account registered for receipt of dividends)

iii)         The method of transferring dividends into an account at a financial institution such as a bank (including Japan Post Bank).

(System of designating an account for each issue held)

* It is not possible to use method i) for shares that are managed in a special account.

* In the case of method ii), it is not possible to choose a Japan Post Bank account as the account into which the dividends are transferred.