Annual Report Canon U.S.A., INC. Charee Turner ACG

Executive Summary Though Canon’s growth is suffering with the rest of America’s economy, it’s still growing. This company will survive and thrive through it’s struggle.

Part A. Introduction Chief Executive Officer - Yoroku Adachi Chief Executive Officer - Yoroku Adachi Corporate Headquarters – Lake Success, New York Corporate Headquarters – Lake Success, New York Ending date of latest fiscal year – December 31, 2004 Ending date of latest fiscal year – December 31, 2004 Products include: Color and black-and-white copiers, printers, image filing systems, facsimile machines, cameras and lenses, camcorders, semiconductor, broadcast, and optical equipment, flatbed scanners, medical, and other specialized industrial products Products include: Color and black-and-white copiers, printers, image filing systems, facsimile machines, cameras and lenses, camcorders, semiconductor, broadcast, and optical equipment, flatbed scanners, medical, and other specialized industrial products Though Canon, INC. is worldwide, their subsidiary, Canon U.S.A., INC. has sales and support offices throughout the Americas. Though Canon, INC. is worldwide, their subsidiary, Canon U.S.A., INC. has sales and support offices throughout the Americas.

Part A. Audit Report Ernst & Young. The Board of Corporate Auditors of Canon Inc. is made up of four auditors, two of whom are external auditors with no personal associations, capital affiliations, business connections, or other types of interest with or in Canon Inc. In accordance with the Board of Corporate Auditors’ auditing policies and their assigned duties, the auditors attend board, management, and various committee meetings, receive business reports from the directors and others, carefully examine documents related to important decisions, and conduct strict audits of the company’s business and assets Ernst & Young. The Board of Corporate Auditors of Canon Inc. is made up of four auditors, two of whom are external auditors with no personal associations, capital affiliations, business connections, or other types of interest with or in Canon Inc. In accordance with the Board of Corporate Auditors’ auditing policies and their assigned duties, the auditors attend board, management, and various committee meetings, receive business reports from the directors and others, carefully examine documents related to important decisions, and conduct strict audits of the company’s business and assets Though growth is expected, it will be slow moving due to the economic strains the US is currently experiencing. Though growth is expected, it will be slow moving due to the economic strains the US is currently experiencing.

Part A. Stock Market Information As of October 5, 2005 at close, the stock price was $54.61/share of common stock. As of October 5, 2005 at close, the stock price was $54.61/share of common stock. Between October 2004 and October 2005: High - $56.06 and Low - $47.29 Between October 2004 and October 2005: High - $56.06 and Low - $47.29 $0.63 $0.63 December 31, 2004 December 31, 2004 If you have stock in Canon already, hold it. If you have the money to invest, don’t. This company’s recovery will take a little longer for an investment to be profitable. If you have stock in Canon already, hold it. If you have the money to invest, don’t. This company’s recovery will take a little longer for an investment to be profitable.

Part B. Industry Situation and Company Plans The industry for Canon U.S.A., Inc. is moving up but at an extremely retarded rate. Due to the economic strains in America, investors are wary of future events. However, Canon continues to push on with new technologies and developments ons/index.html in order to keep the industry moving, even if it is at a snail’s pace. ons/index.html ons/index.html

Part C. Income Statement Multistep Income Statement Format Multistep Income Statement Format The increase of these amounts show that Canon is growing as a whole, but at a relatively slow rate. The increase of these amounts show that Canon is growing as a whole, but at a relatively slow rate. In millions of yen Gross Profit 1,713,3431,608,900 Operating Profit 543,793454,424 Net Income 343,344275,730

Part C. Balance Sheet In millions of yen In millions of yen The largest increase was in Assets, the next largest in Stockholder’s Equity. Liabilities considerably less of a change. This is how I would see my own company run, had I one. The largest increase was in Assets, the next largest in Stockholder’s Equity. Liabilities considerably less of a change. This is how I would see my own company run, had I one. YearAssets=Liabilities+ Owner’s Equity 20043,587,0211,190,3312,209, ,182,1481,155,4071,865,545

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

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

Part D. Accounting Policies (continued) Topics of the Notes to the Financial Satements Topics of the Notes to the Financial Satements Basis of Presentation and Significant Accounting Policies Basis of Presentation and Significant Accounting Policies Basis of Financial Statement Translation Basis of Financial Statement Translation Foreign Operations Foreign Operations Marketable Securities and Investments Marketable Securities and Investments Trade Receivables Trade Receivables Inventories Inventories Property, Plant, and Equipment Property, Plant, and Equipment Finance Receivables and Operations Leases Finance Receivables and Operations Leases Goodwill and Other Intangible Assets Goodwill and Other Intangible Assets Short-term Loans and Long-term Debt Short-term Loans and Long-term Debt Trade Payables Trade Payables Employee Retirement and Severance Benefits Employee Retirement and Severance Benefits Income Taxes Income Taxes

Part D. Accounting Policies (continued) Topics of the Notes to the Financial Statements (continued) Topics of the Notes to the Financial Statements (continued) Common Stock Common Stock Legal Reserve and Retained Earnings Legal Reserve and Retained Earnings Other Comprehensive Income (Loss) Other Comprehensive Income (Loss) Net Income per Share Net Income per Share Derivatives and Hedging Activities Derivatives and Hedging Activities Commitments and Contingent Liabilities Commitments and Contingent Liabilities Disclosures about the Fair Value of Financial Instruments and Concentrations of Credit Risk Disclosures about the Fair Value of Financial Instruments and Concentrations of Credit Risk Supplemental Cash Flow Information Supplemental Cash Flow Information

Part E. Financial Analysis Liquidity Ratios Working Capital – 1,248,987 mil yen Working Capital – 1,248,987 mil yen Current Ratio – 2.27 Current Ratio – 2.27 Receivable turnover – 6.07 Receivable turnover – 6.07 Average days’ sales uncollected - 60 Average days’ sales uncollected - 60 Inventory turnover – 37.6% Inventory turnover – 37.6% Average days’ inventory on hand – 971 Average days’ inventory on hand – 971 In my opinion, inventory is being held for too long. Something needs to be done to increase sales.

Part E. Financial Analysis Profitability Ratios Profit margin – 9.9% Profit margin – 9.9% Asset turnover – 1.02 Asset 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 like to see a higher return on assets and a larger asset turnover.

Part E. Financial Analysis Solvency Ratio Debt to equity % Debt to equity % 2003 – 61.9% 2003 – 61.9% Debt to equity has decreased almost 10%. This is the mark of a growing business.

Part E. Financial Analysis Market Strength Ratios Price/earnings per share 2004 – 15 Price/earnings per share 2004 – – – 19.8 Dividend yield 2004 – 1.1% Dividend yield 2004 – 1.1% % % The stock has become more valuable and the dividends more profitable.