Annual ReportAnnual Report

Canon U.S.A., INC.Canon U.S.A., INC.Charee TurnerCharee Turner ACG2021.080 ACG2021.080

Executive Executive SummarySummary

Though Canon’s growth is Though Canon’s growth is suffering with the rest of suffering with the rest of

America’s economy, it’s still America’s economy, it’s still growing. This company will growing. This company will survive and thrive through survive and thrive through

it’s struggle.it’s struggle.http://http://

opd.usa.canon.com/html/ciw/investor_relations/indexopd.usa.canon.com/html/ciw/investor_relations/index.html.html

Part A. IntroductionPart A. Introduction Chief Executive Officer - Yoroku Adachi Chief Executive Officer - Yoroku Adachi Corporate Headquarters – Lake Success, New YorkCorporate Headquarters – Lake Success, New York Ending date of latest fiscal year – December 31, Ending date of latest fiscal year – December 31,

20042004 Products include: Color and black-and-white Products include: Color and black-and-white

copiers, printers, image filing systems, facsimile copiers, printers, image filing systems, facsimile machines, cameras and lenses, camcorders, machines, cameras and lenses, camcorders, semiconductor, broadcast, and optical equipment, semiconductor, broadcast, and optical equipment, flatbed scanners, medical, and other specialized flatbed scanners, medical, and other specialized industrial products industrial products

Though Canon, INC. is worldwide, their subsidiary, Though Canon, INC. is worldwide, their subsidiary, Canon U.S.A., INC. has sales and support offices Canon U.S.A., INC. has sales and support offices throughout the Americas.throughout the Americas.

Part A. Audit ReportPart A. Audit Report

Ernst & Young. Ernst & Young. The Board of Corporate Auditors of The Board of Corporate Auditors of Canon Inc. is made up of four auditors, two of whom are external Canon Inc. is made up of four auditors, two of whom are external auditors with no personal associations, capital affiliations, business auditors with no personal associations, capital affiliations, business connections, or other types of interest with or in Canon Inc. In connections, or other types of interest with or in Canon Inc. In accordance with the Board of Corporate Auditors’ auditing policies and accordance with the Board of Corporate Auditors’ auditing policies and their assigned duties, the auditors attend board, management, and their assigned duties, the auditors attend board, management, and various committee meetings, receive business reports from the directors various committee meetings, receive business reports from the directors and others, carefully examine documents related to important decisions, and others, carefully examine documents related to important decisions,

and conduct strict audits of the company’s business and assetsand conduct strict audits of the company’s business and assets Though growth is expected, it will Though growth is expected, it will

be slow moving due to the be slow moving due to the economic strains the US is economic strains the US is currently experiencing.currently experiencing.

Part A. Stock Market Part A. Stock Market InformationInformation

As of October 5, 2005 at close, the stock As of October 5, 2005 at close, the stock price was $54.61/share of common stock.price was $54.61/share of common stock.

Between October 2004 and October 2005: Between October 2004 and October 2005: High - $56.06 and Low - $47.29High - $56.06 and Low - $47.29

$0.63$0.63 December 31, 2004December 31, 2004 If you have stock in Canon already, hold If you have stock in Canon already, hold

it. If you have the money to invest, don’t. it. If you have the money to invest, don’t. This company’s recovery will take a little This company’s recovery will take a little longer for an investment to be profitable.longer for an investment to be profitable.

Part B. Industry Part B. Industry Situation and Situation and

Company PlansCompany PlansThe industry for Canon U.S.A., Inc. is The industry for Canon U.S.A., Inc. is

moving up but at an extremely retarded moving up but at an extremely retarded rate. Due to the economic strains in rate. Due to the economic strains in America, investors are wary of future America, investors are wary of future events. However, Canon continues to events. However, Canon continues to

push on with new technologies push on with new technologies http://www.canon.com/technology/index.http://www.canon.com/technology/index.htmlhtml

and developments and developments http://opd.usa.canon.com/html/ciw/inveshttp://opd.usa.canon.com/html/ciw/investor_relations/index.htmltor_relations/index.html

in order to keep the industry moving, in order to keep the industry moving, even if it is at a snail’s pace. even if it is at a snail’s pace.

Part C. Income Part C. Income StatementStatement

Multistep Income Statement Multistep Income Statement FormatFormat

The increase of these amounts show The increase of these amounts show that Canon is growing as a whole, but that Canon is growing as a whole, but at a relatively slow rate.at a relatively slow rate.

In millions of yenIn millions of yen 20042004 20032003Gross ProfitGross Profit 1,713,3431,713,343 1,608,9001,608,900

Operating Operating ProfitProfit

543,793543,793 454,424454,424

Net IncomeNet Income 343,344343,344 275,730275,730

Part C. Balance Part C. Balance SheetSheet

In millions of yenIn millions of yen

The largest increase was in Assets, The largest increase was in Assets, the next largest in Stockholder’s the next largest in Stockholder’s Equity. Liabilities considerably less Equity. Liabilities considerably less of a change. This is how I would see of a change. This is how I would see my own company run, had I one.my own company run, had I one.

YearYear Assets=Assets= LiabilitiesLiabilities++

Owner’s Owner’s EquityEquity

20042004 3,587,0213,587,021 1,190,3311,190,331 2,209,8962,209,896

20032003 3,182,1483,182,148 1,155,4071,155,407 1,865,5451,865,545

Part C. Part C. Statement of Statement of Cash FlowsCash FlowsCash flows from operations are more Cash flows from operations are more

than net income for the past two years.than net income for the past two years.The company is not growing through The company is not growing through investing activities, i.e., buying property, investing activities, i.e., buying property, plant and equipment and other long plant and equipment and other long lived assets. lived assets. The company’s primary source of The company’s primary source of financing is stock sales.financing is stock sales.Overall, cash has increased over the Overall, cash has increased over the past two years.past two years.

Part D. Part D. Accounting Accounting

PoliciesPoliciesThe company and it’s domestic The company and it’s domestic subsidiaries maintain their books subsidiaries maintain their books of account in conformity with of account in conformity with financial accounting standards of financial accounting standards of Japan. Foreign subsidiaries (which Japan. Foreign subsidiaries (which would include Canon U.S.A., Inc.) would include Canon U.S.A., Inc.) maintain their books of account in maintain their books of account in conformity with financial conformity with financial accounting standards of the accounting standards of the country of their domicile.country of their domicile.

Part D. Accounting Part D. Accounting Policies Policies (continued)(continued)

Topics of the Notes to the Financial SatementsTopics of the Notes to the Financial Satements Basis of Presentation and Significant Accounting PoliciesBasis of Presentation and Significant Accounting Policies Basis of Financial Statement TranslationBasis of Financial Statement Translation Foreign OperationsForeign Operations Marketable Securities and InvestmentsMarketable Securities and Investments Trade ReceivablesTrade Receivables InventoriesInventories Property, Plant, and EquipmentProperty, Plant, and Equipment Finance Receivables and Operations LeasesFinance Receivables and Operations Leases Goodwill and Other Intangible AssetsGoodwill and Other Intangible Assets Short-term Loans and Long-term DebtShort-term Loans and Long-term Debt Trade PayablesTrade Payables Employee Retirement and Severance BenefitsEmployee Retirement and Severance Benefits Income TaxesIncome Taxes

Part D. Accounting Part D. Accounting Policies Policies (continued)(continued)

Topics of the Notes to the Financial Topics of the Notes to the Financial Statements (continued)Statements (continued) Common Stock Common Stock Legal Reserve and Retained EarningsLegal Reserve and Retained Earnings Other Comprehensive Income (Loss)Other Comprehensive Income (Loss) Net Income per ShareNet Income per Share Derivatives and Hedging ActivitiesDerivatives and Hedging Activities Commitments and Contingent LiabilitiesCommitments and Contingent Liabilities Disclosures about the Fair Value of Financial Disclosures about the Fair Value of Financial

Instruments and Concentrations of Credit RiskInstruments and Concentrations of Credit Risk Supplemental Cash Flow InformationSupplemental Cash Flow Information

Part E. Financial AnalysisPart E. Financial AnalysisLiquidity RatiosLiquidity Ratios

Working Capital – 1,248,987 mil yenWorking Capital – 1,248,987 mil yen Current Ratio – 2.27Current Ratio – 2.27 Receivable turnover – 6.07Receivable turnover – 6.07 Average days’ sales uncollected - 60Average days’ sales uncollected - 60 Inventory turnover – 37.6%Inventory turnover – 37.6% Average days’ inventory on hand – 971Average days’ inventory on hand – 971

In my opinion, inventory is being held for In my opinion, inventory is being held for too long. Something needs to be done to too long. Something needs to be done to increase sales.increase sales.

Part E. Financial AnalysisPart E. Financial AnalysisProfitability RatiosProfitability Ratios

Profit margin – 9.9%Profit margin – 9.9% Asset turnover – 1.02Asset turnover – 1.02 Return on assets – 10%Return on assets – 10% Return on equity – 16.8%Return on equity – 16.8%

The return on equity is fine, but I would The return on equity is fine, but I would like to see a higher return on assets like to see a higher return on assets and a larger asset turnover.and a larger asset turnover.

Part E. Financial AnalysisPart E. Financial AnalysisSolvency RatioSolvency Ratio

Debt to equity 2004 - 53.9% Debt to equity 2004 - 53.9%

2003 – 61.9%2003 – 61.9%

Debt to equity has decreased almost Debt to equity has decreased almost 10%. This is the mark of a growing 10%. This is the mark of a growing business.business.

Part E. Financial AnalysisPart E. Financial AnalysisMarket Strength RatiosMarket Strength Ratios

Price/earnings per share 2004 – 15 Price/earnings per share 2004 – 15

2003 – 2003 – 19.819.8

Dividend yield 2004 – 1.1% Dividend yield 2004 – 1.1%

2003 - .81%2003 - .81%

The stock has become more valuable The stock has become more valuable and the dividends more profitable.and the dividends more profitable.