FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

For the month of .....August................................................................. , 2010  

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           X          Form 40-F                    

     [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                    No           X          

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

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.

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

The following materials are included.

1. Quarterly Report filed with the Japanese government pursuant to the Financial Instruments and Exchange Law of Japan For the second quarter ended June 30, 2010

[English summary with full translation of consolidated financial information]

Quarterly Report filed with the Japanese government
pursuant to
the Financial Instruments and Exchange Law of Japan

For the second quarter ended
June 30, 2010

CANON  INC.
Tokyo, Japan

CONTENTS

				Page
I		Corporate Information
		(1)     Consolidated Financial Summary			2
		(2)     Description of Business			3
		(3)     Group Entities			3
		(4)     Number of Employees			3
II		The Business
		(1)     Production and Sales			4
		(2)     Risk Factors			5
		(3)     Significant Business Contracts Entered into in the Second Quarter of Fiscal 2010			5
		(4)     Operating Results			8
III		Property, Plant and Equipment
		(1)     Major Property, Plant and Equipment			11
		(2)     Prospect of Capital Investment in the Second Quarter of Fiscal 2010			11
IV		Company Information
		(1)     Shares			11
		(2)     Stock Price Transition			16
		(3)     Directors and Executive Officers			17
V		Financial Statements
		(1)     Consolidated Financial Statements			18
		(2)     Other Information			48

Disclaimer Regarding Forward-Looking Statements

This quarterly report includes forward-looking statements (within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934) concerning Canon Inc. (the “Company”) and its subsidiaries (collectively “Canon”). To the extent that statements in this quarterly report do not relate to historical or current facts, they constitute forward-looking statements. These forward-looking statements are based on the current assumptions and beliefs of Canon in light of the information currently available to them, and involve known and unknown risks, uncertainties and other factors. Such risks, uncertainties and other factors may cause Canon’s actual results, performance, achievements or financial position to be materially different from any future results, performance, achievements or financial position expressed or implied by these forward-looking statements. Canon undertakes no obligation to publicly update any forward-looking statements after the date of this quarterly report. Investors are advised to consult any further disclosures by Canon in its subsequent filings with the U.S. Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 and its other filings.

The risks, uncertainties and other factors referred to above include, but are not limited to, foreign exchange rate fluctuations; the uncertainty of Canon’s ability to implement its plans to localize production and other measures to reduce the impact of foreign exchange rate fluctuations; uncertainty of economic conditions in Canon’s major markets; uncertainty about continued demand for Canon’s high-value-added products; uncertainty about the recovery of computer and related markets; uncertainty about the recovery in demand for Canon’s semiconductor production equipment; Canon’s ability to continue to develop and market products that incorporate new technology on a timely basis, are competitively priced and achieve market acceptance; the possibility of losses resulting from foreign currency transactions designed to reduce financial risks from changes in foreign exchange rates; and inventory risk due to shifts in market demand.

I . Corporate Information

(1)

Consolidated Financial Summary

		Millions of yen (except per share amounts)
		Six months				Six months				Three months				Three months				Year ended December 31, 2009
		ended				ended				ended				ended
		June 30, 2010				June 30, 2009				June 30, 2010				June 30, 2009
Net sales			1,725,884				1,480,819				970,358				793,785				3,209,201
Income before income taxes			201,503				57,886				112,651				35,492				219,355
Net income attributable to Canon Inc.			124,449				33,349				67,638				15,605				131,647
Canon Inc. stockholders’ equity			-				-				2,699,378				2,683,183				2,688,109
Total equity			-				-				2,876,283				2,871,761				2,879,400
Total assets			-				-				4,016,902				3,744,669				3,847,557
Canon Inc. stockholders’ equity per share (yen)			-				-				2,176.72				2,173.53				2,177.53
Net income attributable to Canon Inc. Stockholders per share:
Basic (yen)			100.68				27.01				54.67				12.64				106.64
Diluted (yen)			100.68				27.01				54.66				12.64				106.64
Canon Inc. stockholders’ equity to total assets (%)			-				-				67.2				71.7				69.9
Cash flows from operating activities			348,575				188,701				-				-				611,235
Cash flows from investing activities			(176,982)				(218,332)				-				-				(370,244)
Cash flows from financing activities			(150,605)				(71,360)				-				-				(142,379)
Cash and cash equivalents at end of period			-				-				771,697				603,565				795,034
Number of employees			-				-				193,804				165,318				168,879

Notes:

	1.		Canon’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles.
	2.		Consumption tax is excluded from the stated amount of net sales.

(2)

Description of Business

Canon prepares quarterly consolidated financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The conformity to U.S. GAAP is also applied to sections “II. The Business” and “III. Property, Plant and Equipment”.

Canon (consisting of the Company, 308 consolidated subsidiaries and 15 affiliates accounted for using the equity method, collectively, the “Group”) is engaged in the development, manufacture, sale and service primarily in the fields of office, consumer, industry and others. No material change in Canon’s business has occurred during the three months ended June 30, 2010.

No additions or removals of principal group entities have occurred during the three months ended June 30, 2010.

(3)

Group Entities

No additions or removals of significant group entities have occurred during the three months ended June 30, 2010.

(4)

Number of Employees

Canon’s number of employees is summarized as follows:

		As of June 30, 2010
Consolidated			193,804
Parent-alone			26,123

Note:

The total number of employees includes seasonal workers and others who do not work full time.

(1)

Production and Sales

Production

Canon’s production by segment group are summarized as follows:

		Millions of yen
		Three months ended June 30, 2010
						Change from
		Production				June 30, 2009(%)
Office			486,779				+84.9
Consumer			404,127				+18.5
Industry and Others			72,709				+76.3
Total			963,615				+49.3

Notes:

1.		Amount of production is calculated by sales price.
2.		Consumption tax is excluded from the stated amount of production.

Sales

Canon’s sales by segment group are summarized as follows:

		Millions of yen
		Three months ended June 30, 2010
						Change from
		Sales				June 30, 2009(%)
Office			521,943				+31.3
Consumer			364,027				+9.8
Industry and Others			108,930				+27.5
Eliminations			(24,542)				-
Total			970,358				+22.2

Notes:

1.		Consumption tax is excluded from the stated amount of net sales.
2.		Canon’s sales to its significant customer are summarized as follows:

Millions of yen

Three months ended June 30, 2010

Three months ended June 30, 2009

Sales

Proportion (%)

Sales

Proportion (%)

Hewlett-Packard Company

193,743

20.0

141,161

17.8

(2)

Risk Factors

No additional risks related to Canon’s business have arisen during the three months ended June 30, 2010. Furthermore, no material changes are recognized pursuant to the risk factors of Canon’s business indicated in the Annual Securities Report (Yukashoken houkokusho) of the previous fiscal year.

(3)

Significant Business Contracts Entered into in the Second Quarter of 2010

Share Exchange Agreement – Canon Machinery Inc.

On June 28, 2010, the Boards of Directors of Canon Inc. (“the Company”) approved a share exchange under which the Company would make Canon Machinery Inc. (“Canon Machinery”) its wholly owned subsidiary, and the Company has entered into a share exchange agreement with Canon Machinery on the same date.

1. Strategic Rationale

The Company aims to facilitate the organic integration of management resources between the Company and Canon Machinery, further enhance the synergies throughout the Canon Group, and promote the flexibility and speed of its management, through the share exchange with Canon Machinery.

2. Method and Procedures

In accordance with the share exchange agreement reached on June 28, 2010, the Company allotted 0.61 share of the Company for one share of Canon Machinery to the shareholders of Canon Machinery (excluding itself), who will hold the shares of Canon Machinery just before the planned acquisition date of all the outstanding shares (excluding shares already held by the Company).

The Company executed the share exchange without obtaining the approval at the shareholders meeting of Canon Inc., pursuant to the provision of Article 796 Paragraph 3 stated in the Corporation Law, which specifies the simplified share exchange procedure. The Company did not issue new shares for this transaction, and allotted its treasury stocks instead.

3. Share Exchange Ratio

0.61 share of common stock of the Company was allotted and delivered for one share of common stock of Canon Machinery. As for the 5,208,900 shares of Canon Machinery held by the Company, no shares were allotted.

4. Basis for Calculation of the Terms of Allotment in Connection with the Share Exchange

In order to secure the fairness of the share exchange ratio under the share exchange, the Company and Canon Machinery determined that each company would separately request an independent third-party appraisal agency to calculate the share exchange ratio, and designated Nomura Securities Co., Ltd. (“Nomura Securities”) and Daiwa Securities Capital Markets Co., Ltd. (“Daiwa Securities CM”), respectively, as the third-party appraisal agencies to calculate the share exchange ratio.

Nomura Securities calculated the share exchange ratio by performing the average market price analysis for the Company, and the average market price analysis, comparable companies analysis and discounted cash flow analysis (DCF analysis) for Canon Machinery.

Daiwa Securities CM calculated the share exchange ratio by performing the market price analysis for the Company, and the market price analysis, comparable companies analysis and discounted cash flow analysis (DCF analysis) for Canon Machinery.

The Company and Canon Machinery diligently examined the results of professional analysis and advice on the calculation of the proposed share exchange ratios submitted by the above-mentioned third-party appraisal agencies designated by each company, and the Boards of Directors of the Company and Canon Machinery determined the share exchange ratio under the share exchange.

5. Date of the Share Exchange (effective date)

Friday, October 1, 2010

6. Outline of the Parties to the Share Exchange

Wholly owning parent company resulting from the Share Exchange

(1)

Trade Name: Canon Inc.

(2)

Business Operation: Development, Manufacture and sale of office equipment, consumer products, and industrial and other equipment

(3)

Common Stock: ¥174,762 million (As of June 30, 2010)

Share Exchange Agreement – Tokki corporation

On June 28, 2010, the Boards of Directors of Canon Inc. (“the Company”) approved a share exchange under which the Company would make Tokki corporation (“Tokki”) its wholly owned subsidiary, and the Company has entered into a share exchange agreement with Tokki on the same date.

1. Strategic Rationale

The Company aims to facilitate the organic integration of management resources between the Company and Tokki, further enhance the synergies throughout the Canon Group, and promote the flexibility and speed of its management, through the share exchange with Tokki.

2. Method and Procedures

In accordance with the share exchange agreement reached on June 28, 2010, the Company allotted 0.12 share of the Company for one share of Tokki to the shareholders of Tokki (excluding itself), who will hold the shares of Tokki just before the planned acquisition date of all the outstanding shares (excluding shares already held by the Company).

The Company executed the share exchange without obtaining the approval at the shareholders meeting of Canon Inc., pursuant to the provision of Article 796 Paragraph 3 stated in the Corporation Law, which specifies the simplified share exchange procedure. The Company did not issue new shares for this transaction, and allotted its treasury stocks instead.

3. Share Exchange Ratio

0.12 share of common stock of the Company was allotted and delivered for one share of common stock of Tokki. As for the 22,301,620 shares of Tokki held by the Company, no shares were allotted.

4. Basis for Calculation of the Terms of Allotment in Connection with the Share Exchange

In order to secure the fairness of the share exchange ratio under the share exchange, the Company and Tokki determined that each company would separately request an independent third-party appraisal agency to calculate the share exchange ratio, and designated Nomura Securities Co., Ltd. (“Nomura Securities”) and Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (“Mitsubishi UFJ Morgan Stanley Securities”), respectively, as the third-party appraisal agencies to calculate the share exchange ratio.

Nomura Securities calculated the share exchange ratio by performing the average market price analysis for the Company, and the average market price analysis, comparable companies analysis and discounted cash flow analysis (DCF analysis) for Tokki.

Mitsubishi UFJ Morgan Stanley Securities calculated the share exchange ratio by performing the market price analysis for the Company, and the market price analysis, comparable companies analysis and discounted cash flow analysis (DCF analysis) for Tokki.

The Company and Tokki diligently examined the results of professional analysis and advice on the calculation of the proposed share exchange ratios submitted by the above-mentioned third-party appraisal agencies designated by each company, and the Boards of Directors of the Company and Tokki determined the share exchange ratio under the share exchange.

5. Date of the Share Exchange (effective date)

Friday, October 1, 2010

6. Outline of the Parties to the Share Exchange

Wholly owning parent company resulting from the Share Exchange

(1)

Trade Name: Canon Inc.

(2)

Business Operation: Development, Manufacture and sale of office equipment, consumer products, and industrial and other equipment

(3)

Common Stock: ¥174,762 million (As of June 30, 2010)

(4)

Operating Results

Looking back at the global economy in the second quarter of 2010, economic conditions continued improving broadly amid the recovery trend from the second half of 2009. Although the pace of economic recovery in Europe has remained decidedly modest largely due to sluggish consumer spending triggered by the financial concerns of Greece and other Southern European nations, along with deteriorating unemployment conditions, the United States continued to record a recovery in consumer spending along with steady export growth, while Japan saw a rapid increase in exports, mainly to Asian countries. The Asian economies, such as those of China and India, along with other emerging countries, continued to display solid growth.

As for the markets in which Canon operates amid these conditions, within the office equipment market, as had occurred earlier with color-model network digital multifunction devices (MFDs), demand for monochrome models also finally headed toward recovery. Additionally, the market for laser printers achieved a turnaround compared with the previous year. As for the consumer products market, demand for digital single-lens reflex (SLR) cameras displayed healthy growth throughout most all global markets, while demand for compact digital cameras recovered in developed countries and grew steadily in emerging markets, such as those in Asia. With regard to inkjet printers, demand indicates a steady recovery trend with the market size expanding compared with the year-ago period. In the industry and others market, market conditions for semiconductor lithography equipment and liquid crystal display (LCD) lithography equipment were marked by an upturn in order placements, owing to improved sentiment within the semiconductor-device and LCD-panel markets. The average values of the yen during the second quarter and first half of the year were ¥91.96 and ¥91.35 to the U.S. dollar, respectively, year-on-year appreciations of approximately ¥5 and ¥4, and ¥116.34 and ¥120.20 to the euro, year-on-year appreciations of approximately ¥17 and ¥7.

Amid the effects of the strong yen, net sales for the quarter totaled ¥970.4 billion, an increase of 22.2% from the year-ago period, and ¥1,725.9 billion for the first six months, a jump of 16.5%, owing to strong sales of such consumer products as digital SLR cameras, a strong recovery in sales of laser printers among office products, the turnaround within the industry and others market, and the impact of consolidation arising from corporate acquisitions, such as that of Océ N.V. Although the appreciation of the yen had a significant impact, the quarterly gross profit ratio rose 5.5 points year on year to 49.0%, and improved 5.4 points to 48.9% for the first half, mainly reflecting the launch of new products and ongoing cost-cutting efforts, along with heightened production turnover accompanying ramped up production. As a result, gross profit rose by 37.6% to ¥475.4 billion for the second quarter and increased by 31.0% to ¥843.9 billion for the six months ended June 30, 2010. Despite the impact of consolidation, Group-wide efforts to thoroughly cut spending contributed to an improvement in the operating expenses to sales ratio of 0.5 points to 37.3% for the quarter, and of 1.8 points to 37.3% for the first half of the year. Consequently, operating profit climbed approximately 2.5-fold to ¥113.4 billion for the quarter, and approximately 3.1 fold to ¥200.3 billion for the combined six-month period. Other income (deductions) recorded an increase due to an improvement in foreign currency exchange losses and earnings on investments in affiliates, leading to income before income taxes for the second quarter of ¥112.7 billion, an approximately 3.2-fold increase year on year, and ¥201.5 billion for the six months ended June 30, 2010, an approximately 3.5-fold leap from the corresponding period of the previous year. Net income attributable to Canon Inc. surged approximately 4.3-fold to ¥67.6 billion for the quarter, and 3.7 fold to ¥124.4 billion for the first half.

Basic net income attributable to Canon Inc. stockholders per share for the quarter was ¥54.67, an increase of ¥42.03 compared with the corresponding quarter of the previous year, and ¥100.68 for the first half of 2010, a year-on-year increase of ¥73.67.

Canon’s second-quarter results by business unit are summarized as follows:

Looking at Canon’s quarterly performance by business sector, within the Office Business Unit, while sales volume of color network digital MFDs increased by 39% boosted by the recovery in demand for office equipment along with the introduction of new image RUNNER ADVANCE-series products, sales volume for monochrome models increased by 21% reflecting the recovering market conditions. Laser printers, which suffered sluggish sales in the corresponding quarter of the previous year largely due to an adjustment of inventory levels, realized a significant increase in sales volume of 103%, almost double that of the previous year. Consequently, despite the significant effects of the strong yen, second-quarter sales for the segment totaled ¥521.9 billion, growing 31.3% year on year, and ¥931.1 billion for the six months ended June 30, 2010, an increase of 19.9%. Operating profit increased 98.0% to ¥83.8 billion for the second quarter, and 72.8% to ¥155.9 billion for the combined six months of the year, mainly as a result of expanded sales and the sharp rise in the gross profit ratio.

Within the Consumer Business Unit, sales volumes of such new digital SLR cameras as the competitively priced EOS Digital Rebel T1i (EOS 500D) and the new EOS Digital Rebel T2i (EOS 550D), along with the EOS 5D Mark II and EOS 7D advanced-amateur models, sustained healthy growth. As for compact digital cameras, the Company launched four new ELPH (IXUS)-series models and five new PowerShot-series models, boosting sales volumes particularly in emerging markets. Consequently, sales volume for digital cameras recorded a year-on-year increase of 9%. With respect to inkjet printers, sales displayed solid growth, particularly in Asia, amid the market recovery, contributing to an increase in sales volume of 4%. Although the appreciation of the yen had a strong impact, sales for the segment rose 9.8% year on year to ¥364.0 billion, and 14.0% to ¥654.3 billion for the six-month period. Operating profit increased by 71.6% to ¥66.9 billion for the quarter, and 101.3% to ¥114.3 billion for the first half, largely reflecting increased sales and the rise in the gross profit ratio.

In the Industry and Others Business Unit, independent business-related sales of Group subsidiaries increased in line with the turnaround in business conditions while sales volume of LCD lithography equipment grew appreciably, stimulated by the revival of the market. Sales volume of semiconductor lithography equipment, while remaining at a low level, also gained modestly. As a result, sales for the segment grew 27.5% to ¥108.9 billion for the quarter and 11.6% to ¥191.3 billion for the combined six months. Operating loss improved by ¥2.7 billion to ¥5.4 billion for the quarter and totaled ¥8.4 billion for the six-month period, a turnaround of ¥15.4 billion year on year owing to expanded sales combined with a reduction in expenses.

Second-quarter results by major geographic area are summarized as follows:

Japan

Net sales in Japan for the second quarter recorded an increase of 18.8% from the year-ago period to ¥733.6 billion, and a growth of 19.5% to ¥1,357.1 billion for the six months ended June 30, 2010 mainly owing to the rise in production turnover accompanying an increase in production, along with a significant recovery in sales. Operating profit generated in Japan surged 137.8% year on year to ¥115.1 billion for the quarter, and 160.5% to ¥210.2 billion for the six-month period.

Amid the effects of the strong yen, net sales outside Japan recorded growth compared with the corresponding quarter and six months of the previous year, thanks to the healthy sales expansion of products such as digital SLR cameras, coupled with the sales rebound for laser printers.

Americas

Despite the sharp appreciation of the yen, second-quarter sales totaled ¥266.4 billion, an increase of 20.9% from the year-ago period, and ¥467.8 billion for the combined six months of the year, an increase of 19.3%, largely due to solid sales of digital SLR cameras, recovery of sales for laser printers and the impact of consolidation. Operating profit for the second quarter totaled ¥7.6 billion, an approximately 4.0-fold increase year on year, and ¥11.5 billion for the six months ended June 30, 2010, an approximately 6.5-fold leap from the corresponding period of the previous year.

Europe

Although the appreciation of the yen had a strong impact, sales for the quarter recorded ¥310.4 billion, an increase of 29.7% from the same period of the previous year, and ¥540.5 billion an increase of 20.5% compared with the first half of the previous year, primarily due to the significant recovery of laser-printer-sales, combined with the effects of new consolidation. Operating profit for the second quarter totaled ¥13.1 billion, an approximately 2.5-fold increase year on year, and ¥20.0 billion for the six months ended June 30, 2010, a jump of 48.0%.

Asia and others

Sales for the second quarter rose by 45.5% from the year-ago period to ¥364.2 billion, and increased by 50.3% to ¥652.2 billion for the six months ended June 30, 2010 mainly owing to expanded sales of digital SLR cameras and LCD lithography equipment. Operating profit generated in the region surged 50.5% year on year to ¥14.1 billion for the quarter, and 85.1% to ¥25.0 billion for the six-month period.

Cash Flows

In the second quarter of 2010, cash flows from operating activities totaled ¥186.9 billion, an increase of ¥50.7 billion year on year, mainly due to the significant increase in profit. As capital investment was focused on items relevant to introducing new products, cash flows from investing activities decreased ¥50.4 billion to a total of ¥65.9 billion. Accordingly, free cash flows totaled positive ¥121.0 billion, an increase of ¥101.1 billion from the corresponding year-ago period.

Cash flows from financing activities recorded an outlay of ¥26.3 billion, mainly arising from the partial repayment of certain borrowings of Océ N.V., classified as short-term loans. Cash and cash equivalents increased by ¥56.2 billion to ¥771.7 billion from the end of the previous quarter.

Management Issues to be Addressed

No material changes or issues with respect to business operations and finance have occurred during the three months ended June 30, 2010.

Research and Development Expenditures

Canon’s research and development expenditures for the three months ended June 30, 2010 totaled ¥81.9 billion.

III . Property, Plant and Equipment

(1)

Major Property, Plant and Equipment

There were no significant changes to the status of existing major property, plant and equipment during the second quarter of 2010.

(2)

Prospect of Capital Investment in the Second Quarter of Fiscal 2010

There were no significant changes in the plans relevant to the retirement of property, plant and equipment during the second quarter of 2010. Moreover, there were no significant additional plans for new construction or retirement of property, plant and equipment during the second quarter of 2010.

IV . Company Information

(1)

Shares

Total number of authorized shares is 3,000,000,000 shares. The common stock of Canon is listed on the Tokyo, Osaka, Nagoya, Fukuoka, Sapporo and New York Stock Exchanges. Total issued shares are as follows:

		As of
		June 30, 2010
Total number of issued shares			1,333,763,464

Stock Acquisition Rights

The descriptions of the stock option plans as of June 30, 2010 are below.

The Stock Option Plan Approved on March 28, 2008

1. Number of share options

The number of share options that the Board of Directors are authorized to issue is 5,680.

2. Number of shares acquired upon exercise of a share option

The number of shares acquired upon exercise of one share option (the “Allotted Number of Shares”) is 100 common shares, and the total number of shares to be delivered due to the exercise of share options is 568,000 common shares.

3. Cash payment for share options (yen)

The cash payment required for each share option is ¥5,502.

(i)

If the Company effects a share split or a share consolidation after the date of the allotment of the share options, the Exercise Price will be adjusted by the following calculation formula, with any fractional amount of less than one yen to be rounded up to one yen:

Exercise Price after Adjustment

=Exercise Price before adjustment ×			1
		Ratio of Share Split or Share Consolidation

(ii)

If, after the date of allotment of share options, the Company issues common shares at a price lower than the then market price thereof or disposes common shares owned by it, the Exercise Price will be adjusted by the following calculation formula, with any fractional amount of less than one yen to be rounded up to one yen; however, the Exercise Price will not be adjusted in the case of the exercise of share options:

Exercise Price after Adjustment     =     Exercise Price before Adjustment ×

   Number of Issued and Outstanding Shares +

Market Price

Number of Issued and Outstanding Shares + Number of Newly Issued Shares

			The “Number of Issued and Outstanding Shares” is the number of shares already issued by the Company after subtraction of the number of shares owned by the Company. In the case of the Company’s disposal of shares owned by it, the “Number of Newly Issued Shares” will be replaced with the “Number of Own Shares to Be Disposed.”
	(iii)		In the case of a merger, a company split or capital reduction after the date of allotment of share options, or in any other analogous case requiring the adjustment of the Exercise Price, the Exercise Price shall be appropriately adjusted within a reasonable range.

4. Period during which share options are exercisable

From May 1, 2010 to April 30, 2014.

5. Exercise price and amount of increased stated capital (yen)

The exercise price and amount of increased stated capital per share is ¥5,502 and ¥2,751, respectively.

6. Other Conditions for Exercise of Share Options

	(i)		One share option may not be exercised partially.
	(ii)		Each holder of share options must continue to be a director, executive officer or employee of the Company until the end of the Company’s general meeting of shareholders regarding the final business term within 2 years from the end of the Ordinary General Meeting of Shareholders for the 107th Business Term of the Company.
	(iii)		Holders of share options will be entitled to exercise their share options for 2 years, and during the exercisable period, even after they lose their positions as directors, executive officers or employees. However, if a holder of share options loses such position due to resignation at his/her initiative, or due to dismissal or discharge by the Company, his/her share options will immediately be forfeited.
	(iv)		No succession by inheritance is authorized for the share options.
	(v)		Any other conditions for the exercise of share options may be established by the Board of Directors.

7. Restriction on Acquisition of Share Options by Transfer

An acquisition of share options by way of transfer requires the approval of the Board of Directors.

The Stock Option Plan Approved on March 27, 2009

1. Number of share options

The number of share options that the Board of Directors are authorized to issue is 7,820.

2. Number of shares acquired upon exercise of a share option

The number of shares acquired upon exercise of one share option (the “Allotted Number of Shares”) is 100 common shares, and the total number of shares to be delivered due to the exercise of share options is 782,000 common shares.

3. Cash payment for share options (yen)

The cash payment required for each share option is ¥3,287.

(i)

If the Company effects a share split or a share consolidation after the date of the allotment of the share options, the Exercise Price will be adjusted by the following calculation formula, with any fractional amount of less than one yen to be rounded up to one yen:

Exercise Price after Adjustment

=Exercise Price before adjustment ×			1
		Ratio of Share Split or Share Consolidation

(ii)

If, after the date of allotment of share options, the Company issues common shares at a price lower than the then market price thereof or disposes common shares owned by it, the Exercise Price will be adjusted by the following calculation formula, with any fractional amount of less than one yen to be rounded up to one yen; however, the Exercise Price will not be adjusted in the case of the exercise of share options:

Exercise Price after Adjustment     =     Exercise Price before Adjustment ×

   Number of Issued and Outstanding Shares +

Market Price

Number of Issued and Outstanding Shares + Number of Newly Issued Shares

			The “Number of Issued and Outstanding Shares” is the number of shares already issued by the Company after subtraction of the number of shares owned by the Company. In the case of the Company’s disposal of shares owned by it, the “Number of Newly Issued Shares” will be replaced with the “Number of Own Shares to Be Disposed.”
	(iii)		In the case of a merger, a company split or capital reduction after the date of allotment of share options, or in any other analogous case requiring the adjustment of the Exercise Price, the Exercise Price shall be appropriately adjusted within a reasonable range.

4. Period during which share options are exercisable

From May 1, 2011 to April 30, 2015.

5. Exercise price and amount of increased stated capital (yen)

The exercise price and amount of increased stated capital per share is ¥3,287 and ¥1,644, respectively.

6. Other Conditions for Exercise of Share Options

	(i)		One share option may not be exercised partially.
	(ii)		Each holder of share options must continue to be a director, executive officer or employee of the Company until the end of the Company’s general meeting of shareholders regarding the final business term within 2 years from the end of the Ordinary General Meeting of Shareholders for the 108th Business Term of the Company.
	(iii)		Holders of share options will be entitled to exercise their share options for 2 years, and during the exercisable period, even after they lose their positions as directors, executive officers or employees. However, if a holder of share options loses such position due to resignation at his/her initiative, or due to dismissal or discharge by the Company, his/her share options will immediately be forfeited.
	(iv)		No succession by inheritance is authorized for the share options.
	(v)		Any other conditions for the exercise of share options may be established by the Board of Directors.

7. Restriction on Acquisition of Share Options by Transfer

An acquisition of share options by way of transfer requires the approval of the Board of Directors.

The Stock Option Plan Approved on March 30, 2010

1. Number of share options

The number of share options that the Board of Directors are authorized to issue is 8,900.

2. Number of shares acquired upon exercise of a share option

The number of shares acquired upon exercise of one share option (the “Allotted Number of Shares”) is 100 common shares, and the total number of shares to be delivered due to the exercise of share options is 890,000 common shares.

3. Cash payment for share options (yen)

The cash payment required for each share option is ¥4,573.

(i)

If the Company effects a share split or a share consolidation after the date of the allotment of the share options, the Exercise Price will be adjusted by the following calculation formula, with any fractional amount of less than one yen to be rounded up to one yen:

Exercise Price after Adjustment

=Exercise Price before adjustment ×			1
		Ratio of Share Split or Share Consolidation

(ii)

If, after the date of allotment of share options, the Company issues common shares at a price lower than the then market price thereof or disposes common shares owned by it, the Exercise Price will be adjusted by the following calculation formula, with any fractional amount of less than one yen to be rounded up to one yen; however, the Exercise Price will not be adjusted in the case of the exercise of share options:

Exercise Price after Adjustment     =     Exercise Price before Adjustment ×

   Number of Issued and Outstanding Shares +

Market Price

Number of Issued and Outstanding Shares + Number of Newly Issued Shares

			The “Number of Issued and Outstanding Shares” is the number of shares already issued by the Company after subtraction of the number of shares owned by the Company. In the case of the Company’s disposal of shares owned by it, the “Number of Newly Issued Shares” will be replaced with the “Number of Own Shares to Be Disposed.”
	(iii)		In the case of a merger, a company split or capital reduction after the date of allotment of share options, or in any other analogous case requiring the adjustment of the Exercise Price, the Exercise Price shall be appropriately adjusted within a reasonable range.

4. Period during which share options are exercisable

From May 1, 2012 to April 30, 2016.

5. Exercise price and amount of increased stated capital (yen)

The exercise price and amount of increased stated capital per share is ¥4,573 and ¥2,287, respectively.

6. Other Conditions for Exercise of Share Options

	(i)		One share option may not be exercised partially.
	(ii)		Each holder of share options must continue to be a director, executive officer or employee of the Company until the end of the Company’s general meeting of shareholders regarding the final business term within 2 years from the end of the Ordinary General Meeting of Shareholders for the 109th Business Term of the Company.
	(iii)		Holders of share options will be entitled to exercise their share options for 2 years, and during the exercisable period, even after they lose their positions as directors, executive officers or employees. However, if a holder of share options loses such position due to resignation at his/her initiative, or due to dismissal or discharge by the Company, his/her share options will immediately be forfeited.

	(iv)		No succession by inheritance is authorized for the share options.
	(v)		Any other conditions for the exercise of share options may be established by the Board of Directors.

7. Restriction on Acquisition of Share Options by Transfer

     An acquisition of share options by way of transfer requires the approval of the Board of Directors.

Exercise status of bonds with share subscription rights containing an adjustable exercise price clause

Not applicable.

Rights Plan

Not applicable

Change in Issued Shares, Capital Stock and Additional Paid in Capital

		Change during this term				As of June 30, 2010
Issued Shares (share)			-				1,333,763,464
Capital Stock (millions of yen)			-				174,762
Additional Paid-in Capital (millions of yen)			-				306,288

Major Shareholders

		As of June 30, 2010
		Number of shares owned				Number of shares owned /
		(Number of shares)				Number of shares issued
The Dai-ichi Life Insurance Company, Limited			74,832,380				5.61%
Japan Trustee Services Bank, Ltd. (Trust Account)			64,792,200				4.86%
The Master Trust Bank of Japan, Ltd. (Trust Account)			60,714,200				4.55%
Moxley & Co.			46,472,318				3.48%
JPMorgan Chase & Co. 380055			45,175,827				3.39%
State Street Bank and Trust Company			28,852,664				2.16%
State Street Bank and Trust Company 505223			20,412,863				1.53%
Sompo Japan Insurance Inc.			19,439,987				1.46%
State Street Bank and Trust Company 505225			19,154,948				1.44%
Melon bank. N.A. as agent for its client melon omnibus US pension			17,330,398				1.30%
total			397,177,785				29.78%

Notes:

1.		Apart from the above shares, The Dai-Ichi Life Insurance Company, Limited held 6,180,000 shares contributed to a trust fund for its retirement and severance plans.
2.		Moxley & Co. is a nominee of JPMorgan Chase Bank, which is the depositary of Canon’s ADRs (American Depositary Receipts.)
3.		Apart from the above shares, the Company owns 93,650,553 shares (7.02% of total issued shares) of treasury stock.
4.		Mizuho Corporate Bank, Ltd. and its four affiliated companies listed below submitted a report on large share holdings to the Kanto Local Finance Bureau on July 7, 2010 in their joint names and reported that they owned 67,096,536 shares (5.03%) of the Company as of June 30, 2010 in total as detailed below. However, the Company has not confirmed the status of these holdings as of June 30, 2010.

		Number of shares held				Number of shares held /
						Number of shares issued
Mizuho Corporate Bank, Ltd.			20,123,736				1.51%
Mizuho Bank, Ltd.			11,491,437				0.86%
Mizuho Securities Co., Ltd.			6,701,197				0.50%
Mizuho Trust & Banking Co., Ltd.			26,620,366				2.00%
Mizuho Asset Management Co., Ltd.			2,159,800				0.16%
total			67,096,536				5.03%

Voting Rights

						As of June 30, 2010
		Number of shares				Number of voting
Classification		(shares)				rights (units)
Shares without voting rights			-				-
Shares with restricted voting rights (Treasury stock, etc.)			-				-
Shares with restricted voting rights (Others)			-				-
Shares with full voting rights (Treasury stock, etc.)			(treasury stock)   93,650,500				-
			(cross shareholding)     3,700
Shares with full voting rights (Others)			1,238,126,200				12,381,262
Fractional unit shares			1,983,064				-
Total number of issued shares			1,333,763,464				-
Total voting rights held by all shareholders			-				12,381,262

Note:

In “Fractional unit shares” under “Number of shares,” 53 shares of treasury stock and 50 shares of cross shareholding are included.

Treasury Stock

		Number of shares owned				Number of shares owned /
		(Number of shares)				Number of shares issued
Canon Inc.			93,650,500				7.02%
Horie Mfg. Co., Ltd.			3,700				0.00%
Total			93,654,200				7.02%

(2)

Stock Price Transition

The following table sets forth the monthly reported high and low market prices of the Company’s common stock on the First Section of Tokyo Stock Exchange for the six months of fiscal 2010:

(Yen)

		January				February				March				April				May				June
High			4,040				3,865				4,400				4,520				4,240				3,905
Low			3,525				3,425				3,685				4,165				3,530				3,260

(3)

Directors and Executive Officers

There were no changes in members of directors between the filing date of the Annual Securities Report (Yukashoken Houkokusho) for the fiscal year ended December 31, 2009 and the filing date of this Quarterly Securities Report (Shihanki Houkokusho).

Changes in functions of directors are below:

Toshizo Tanaka		(Executive Vice President & CFO)
Masahiro Osawa		(Managing Director: Group Executive of Global Procurement HQ, Group Executive of General Affairs HQ)
Haruhisa Honda		(Managing Director: Group Executive of Manufacturing HQ)

The change in members of executive officers between the filing date of the Annual Securities Report (Yukashoken Houkokusho) for the fiscal year ended December 31, 2009 and the filing date of this Quarterly Securities Report (Shihanki Houkokusho) is below.

Changes in functions of executive officers are below:

Masahiro Haga		(Executive Officer: Group Executive of Finance & Accounting HQ)
Kengo Uramoto		(Executive Officer: Group Executive of Human Resources Management & Organization HQ)
Kenichi Nagasawa		(Executive Officer: Group Executive of Corporate Intellectual Property & Legal HQ)
Shigeyuki Uzawa		(Executive Officer: Deputy Chief Executive of Optical Products HQ)

V . Financial Statements (Unaudited)

(1)

Consolidated Financial Statements

     Index of Consolidated Financial Statements of Canon Inc. and Subsidiaries:

		Page
Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009			19
Consolidated Statements of Income for the six months ended June 30, 2010 and 2009			21
Consolidated Statements of Income for the three months ended June 30, 2010 and 2009			22
Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009			23
Notes to Consolidated Financial Statements			24

CANON INC. AND SUBSIDIARIES
Consolidated Balance Sheets

		Millions of yen
		June 30, 2010				December 31, 2009
Assets
Current assets:
Cash and cash equivalents (Note 14)			771,697				795,034
Short-term investments (Note 2)			35,264				19,089
Trade receivables, net (Note 3)			547,961				556,572
Inventories (Note 4)			427,767				373,241
Prepaid expenses and other current assets (Note 10)			295,678				273,843
Total current assets			2,078,367				2,017,779
Noncurrent receivables (Note11)			15,789				14,936
Investments (Note 2)			86,426				114,066
Property, plant and equipment, net (Note 5)			1,263,422				1,269,785
Intangible assets, net			170,158				117,396
Other assets (Note 10)			402,740				313,595
Total assets			4,016,902				3,847,557

CANON INC. AND SUBSIDIARIES
Consolidated Balance Sheets (continued)

		Millions of yen
		June 30, 2010				December 31, 2009
Liabilities and equity
Current liabilities:
Short-term loans and current portion of long-term debt			6,834				4,869
Trade payables (Note 6)			385,682				339,113
Accrued income taxes			66,818				50,105
Accrued expenses (Note 11)			280,191				274,300
Other current liabilities (Note 10)			137,368				115,303
Total current liabilities			876,893				783,690
Long-term debt, excluding current installments			5,444				4,912
Accrued pension and severance cost			177,412				115,904
Other noncurrent liabilities			80,870				63,651
Total liabilities			1,140,619				968,157
Commitments and contingent liabilities (Note 11)
Equity:
Canon Inc. stockholders’ equity (Note 8):
Common stock			174,762				174,762
(Number of authorized shares)			(3,000,000,000)				(3,000,000,000)
(Number of issued shares)			(1,333,763,464)				(1,333,763,464)
Additional paid-in capital			407,031				404,293
Legal reserve			55,291				54,687
Retained earnings			2,918,817				2,871,437
Accumulated other comprehensive income (loss)			(333,405)				(260,818)
Treasury stock, at cost			(523,118)				(556,252)
(Number of shares)			(93,650,553)				(99,288,001)
Total Canon Inc. stockholders’ equity			2,699,378				2,688,109
Noncontrolling interests (Note 8)			176,905				191,291
Total equity (Note 8)			2,876,283				2,879,400
Total liabilities and equity			4,016,902				3,847,557

CANON INC. AND SUBSIDIARIES
Consolidated Statements of Income

		Millions of yen
		Six months ended				Six months ended
		June 30, 2010				June 30, 2009
Net sales			1,725,884				1,480,819
Cost of sales			881,953				836,540
Gross profit			843,931				644,279
Operating expenses:
Selling, general and administrative expenses (Note 14)			490,825				425,735
Research and development expenses			152,825				153,606
			643,650				579,341
Operating profit			200,281				64,938
Other income (deductions):
Interest and dividend income			2,743				2,791
Interest expense			(953)				(221)
Other, net (Notes 10, 13 and 14)			(568)				(9,622)
			1,222				(7,052)
Income before income taxes			201,503				57,886
Income taxes			73,975				24,105
Consolidated net income			127,528				33,781
Less: Net income attributable to noncontrolling interests			3,079				432
Net income attributable to Canon Inc.			124,449				33,349
		Yen				Yen
Net income attributable to Canon Inc. stockholders per share (Note 9):
Basic			100.68				27.01
Diluted			100.68				27.01
Cash dividends per share			55.00				55.00

CANON INC. AND SUBSIDIARIES
Consolidated Statements of Income

		Millions of yen
		Three months ended				Three months ended
		June 30, 2010				June 30, 2009
Net sales			970,358				793,785
Cost of sales			494,995				448,320
Gross profit			475,363				345,465
Operating expenses:
Selling, general and administrative expenses (Note 14)			280,033				219,742
Research and development expenses			81,892				80,817
			361,925				300,559
Operating profit			113,438				44,906
Other income (deductions):
Interest and dividend income			1,722				1,357
Interest expense			(867)				(137)
Other, net (Notes 10, 13 and 14)			(1,642)				(10,634)
			(787)				(9,414)
Income before income taxes			112,651				35,492
Income taxes			43,858				17,346
Consolidated net income			68,793				18,146
Less: Net income attributable to noncontrolling interests			1,155				2,541
Net income attributable to Canon Inc.			67,638				15,605
		Yen				Yen
Net income attributable to Canon Inc. stockholders per share (Note 9):
Basic			54.67				12.64
Diluted			54.66				12.64
Cash dividends per share			55.00				55.00

CANON INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows

		Millions of yen
		Six months ended				Six months ended
		June 30, 2010				June 30, 2009
Cash flows from operating activities:
Consolidated net income			127,528				33,781
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			125,968				155,003
(Gain) loss on disposal of property, plant and equipment			4,597				(2,977)
Deferred income taxes			4,911				11,367
Decrease in trade receivables			15,598				101,401
(Increase) decrease in inventories			(49,876)				98,766
Increase (decrease) in trade payables			87,995				(146,775)
Increase (decrease) in accrued income taxes			19,734				(52,879)
Decrease in accrued expenses			(24,228)				(40,676)
Increase in accrued (prepaid) pension and severance cost			2,605				824
Other, net			33,743				30,866
Net cash provided by operating activities			348,575				188,701
Cash flows from investing activities:
Purchases of fixed assets (Note 5)			(96,783)				(195,449)
Proceeds from sale of fixed assets (Note 5)			1,306				8,450
Purchases of available-for-sale securities			(9,028)				(50)
Proceeds from sale and maturity of available-for-sale securities			24				241
Decrease in time deposits, net			(16,840)				(20,153)
Acquisitions of subsidiaries, net of cash acquired			(55,533)				(2,979)
Purchases of other investments			(505)				(10,133)
Other, net			377				1,741
Net cash used in investing activities			(176,982)				(218,332)
Cash flows from financing activities:
Proceeds from issuance of long-term debt			3,107				2,228
Repayments of long-term debt			(2,751)				(3,232)
Decrease in short-term loans, net (Note 7)			(76,661)				(204)
Dividends paid			(67,897)				(67,897)
Repurchases of treasury stock, net			(5,022)				(18)
Other, net			(1,381)				(2,237)
Net cash used in financing activities			(150,605)				(71,360)
Effect of exchange rate changes on cash and cash equivalents			(44,325)				25,360
Net change in cash and cash equivalents			(23,337)				(75,631)
Cash and cash equivalents at beginning of period			795,034				679,196
Cash and cash equivalents at end of period			771,697				603,565
Supplemental disclosure for cash flow information:
Cash paid during the period for:
Interest			609				227
Income taxes			49,842				62,361

CANON INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(1)

Basis of Presentation and Significant Accounting Policies

	(a)		Basis of Presentation
			The Company issued convertible debentures in the United States in May 1969 and established a program in which its American Depositary Receipts (ADRs) were traded in the U.S. over-the-counter market. Since then, under the U.S. Securities Act of 1933 and the U.S. Securities Exchange Act of 1934, the Company has prepared its annual consolidated financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and filed them with the U.S. Securities and Exchange Commission on Form 20-F. The Company’s ADRs were listed on the NYSE in September 2000 after being quoted on NASDAQ from February 1972 to September 2000.
			Canon’s consolidated financial statements are prepared in accordance with the recognition and measurement criteria of accounting principles generally accepted in the United States. Certain disclosures have been omitted.
			The number of consolidated subsidiaries and affiliated companies that were accounted for on the equity method basis as of June 30, 2010 and December 31, 2009 are summarized as follows:

	June 30, 2010					December 31, 2009
Consolidated subsidiaries			308				241
Affiliated companies			15				15
Total			323				256

	(b)		Principles of Consolidation
			The consolidated financial statements include the accounts of the Company, its majority owned subsidiaries and those variable interest entities where the Company or its consolidated subsidiaries are the primary beneficiaries. All significant intercompany balances and transactions have been eliminated.

CANON INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

(1)

Basis of Presentation and Significant Accounting Policies (continued)

	(c)		Recently Issued Accounting Guidance
			In October 2009, the FASB issued new accounting guidance for revenue recognition under multiple-deliverable arrangements. This guidance modifies the criteria for separating consideration under multiple-deliverable arrangements and requires allocation of the overall consideration to each deliverable using the estimated selling price in the absence of vendor-specific objective evidence or third-party evidence of selling price for deliverables. 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 significant judgments made and their impact on revenue recognition. This guidance is effective for fiscal years beginning on or after June 15, 2010 and is required to be adopted by Canon no later than the first quarter beginning January 1, 2011 (with early adoption permitted). The provisions are effective prospectively for revenue arrangements entered into or materially modified after the effective date, or retrospectively for all prior periods. Canon is currently evaluating the effect of the adoption of this guidance, but does not expect the adoption of this guidance to have a material impact on Canon’s consolidated financial statements.
			In October 2009, the FASB issued new accounting guidance for software revenue recognition. This guidance modifies 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 fiscal years beginning on or after June 15, 2010 and is required to be adopted by Canon no later than the first quarter beginning January 1, 2011 (with early adoption permitted) using the same effective date and the same transition method used to adopt the guidance for revenue recognition under multiple-deliverable arrangements. Canon is currently evaluating the of the adoption of this guidance, but does not expect the adoption of this guidance to have a material impact on Canon’s consolidated financial statements.

CANON INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

(2)		Investments
		The cost, gross unrealized holding gains, gross unrealized holding losses and fair value for available-for-sale securities by major security types are as follows:

		Millions of yen
		June 30, 2010
						Gross				Gross
						unrealized				unrealized
						holding				holding
		Cost				gains				losses				Fair value
Current:
Government bonds			222				-				-				222
Corporate bonds			1,000				-				-				1,000
			1,222				-				-				1,222
Noncurrent:
Government bonds			295				-				17				278
Corporate bonds			268				26				55				239
Fund trusts			3,114				160				1				3,273
Equity securities			20,150				6,222				2,656				23,716
			23,827				6,408				2,729				27,506

		Millions of yen
		December 31, 2009
						Gross				Gross
						unrealized				unrealized
						holding				holding
		Cost				gains				losses				Fair value
Current:
Government bonds			222				-				-				222
Noncurrent:
Government bonds			225				-				21				204
Corporate bonds			1,397				27				55				1,369
Fund trusts			2,275				300				7				2,568
Equity securities			11,932				7,295				1,501				17,726
			15,829				7,622				1,584				21,867

CANON INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

(2)

Investments (continued)

Maturities of available-for-sale debt securities and fund trusts included in short-term investments and investments in the accompanying consolidated balance sheets were as follows at June 30, 2010:

		Millions of yen
		Cost				Fair value
Due within one year			1,222				1,222
Due after one year through five years			2,272				2,432
Due after five years through ten years			1,405				1,358
			4,899				5,012

Realized gains and losses are determined using the average cost method and are reflected in earnings. The gross realized losses, including write-downs for impairments that were other than temporary, were not significant for the six and three months ended June 30, 2010 and ¥1,884 million and 1,369 million for the six and three months ended June 30, 2009 respectively. The gross realized gains were not significant for the six and three months ended June 30, 2010 and 2009.

At June 30, 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 ¥33,983 million and ¥18,852 million at June 30, 2010 and December 31, 2009, respectively, and are included in short-term investments in the accompanying consolidated balance sheets.

The aggregate cost of non-marketable equity securities accounted for under the cost method totaled ¥25,912 million and ¥28,567 million at June 30, 2010 and December 31, 2009, respectively. Investments with an aggregate cost of ¥23,490 million were not evaluated for impairment as of June 30, 2010, because (a) Canon did not estimate the fair value of those investments as it was not practicable to estimate the fair value of such investments and (b) Canon did not identify any events or changes in circumstances that might have had significant adverse effects on the fair value of those investments.

Reclassifications from accumulated other comprehensive loss for gains and losses realized in net income was not significant for the six and three months ended June 30, 2010, and ¥1,494 million and ¥1,114 million for the six and three months ended June 30, 2009, respectively.

CANON INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

(3)		Trade Receivables
		Trade receivables are summarized as follows:

		Millions of yen
		June 30, 2010				December 31, 2009
Notes			37,613				13,037
Accounts			526,598				554,878
Less allowance for doubtful receivables			(16,250)				(11,343)
			547,961				556,572

(4)		Inventories
		Inventories are summarized as follows:

		Millions of yen
		June 30, 2010				December 31, 2009
Finished goods			249,308				228,161
Work in process			143,232				129,824
Raw materials			35,227				15,256
			427,767				373,241

(5)		Property, Plant and Equipment
		Property, plant and equipment are stated at cost less accumulated depreciation and are summarized as follows:

		Millions of yen
		June 30, 2010				December 31, 2009
Land			268,317				258,824
Buildings			1,310,157				1,299,154
Machinery and equipment			1,459,279				1,422,076
Construction in progress			87,390				105,713
			3,125,143				3,085,767
Less accumulated depreciation			(1,861,721)				(1,815,982)
			1,263,422				1,269,785

		Fixed assets presented in the consolidated statement of cash flows includes property, plant and equipment and intangible assets.
(6)		Trade Payables
		Trade payables are summarized as follows:

		Millions of yen
		June 30, 2010				December 31, 2009
Notes			11,463				7,608
Accounts			374,219				331,505
			385,682				339,113

CANON INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

(7)		Acquisition
		In March 2010, Canon acquired 45.2 % of the total outstanding shares of Océ N.V. (“Océ”), which is listed on NYSE Euronext Amsterdam, for consideration of ¥ 50,374 million, in addition to the 22.9% interest Canon held before the public cash tender offer. In addition, Canon acquired Océ’s convertible cumulative financing preference shares representing 19.1% of the total outstanding shares of Océ for consideration of ¥ 8,027 million. 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 interest in Océ of ¥ 18,245 million was measured mainly based on Océ’s common stock price 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 method. The acquisition-date fair value of the previous equity interest of ¥ 25,508 million was remeasured using the quoted price of Océ’s common stock on the acquisition date and included in the measurement of the total acquisition consideration. In connection with the acquisition, Canon repaid ¥ 55,378 million of Océ’s existing bank debt and ¥ 22,936 million of Océ’s existing United States Private Placements notes, which are included in decrease in short-term loans in the consolidated statement of cash flows.
		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 benefit from this strong business relationship. 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 diversified solutions to its customers in the printing industry by making Océ a consolidated subsidiary.
		The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at acquisition date. Although Canon is allocating the amount paid for acquisition to the acquired assets and assumed liabilities, such allocation is incomplete as of the issuance date of the consolidated financial statements.

		Millions of yen
Current assets			123,572
Goodwill and other intangible assets			140,839
Other noncurrent assets			91,650
Non-current assets			232,489
Total acquired assets			356,061
Total assumed liabilities			253,907
Net assets acquired			102,154

		The amounts of net sales of Océ included in the Canon’s consolidated statements of income from the acquisition date to the period ended June 30, 2010 were ¥ 71,874 million.
		The unaudited pro forma net sales as if Océ had been included in Canon’s consolidated results of operations from the beginning of fiscal 2010 and 2009 were ¥ 1,810,372 million and ¥ 1,650,759 million, respectively.
		Pro forma information related to net income was not disclosed because the impact on the Canon’s consolidated results of operation was not material.

CANON INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

(8)		Equity
		The change in the carrying amount of total equity, equity attributable to Canon Inc. stockholders and equity attributable to noncontrolling interests in the consolidated balance sheets for the six months ended June 30, 2010 and 2009 are as follows:

		Millions of yen
		Canon Inc.
		stockholders’				Noncontrolling
		equity				interests				Total equity
Balance at December 31, 2009			2,688,109				191,291				2,879,400
Dividends paid to stockholders of Canon Inc.			(67,897)				-				(67,897)
Dividends paid to noncontrolling interests			-				(1,381)				(1,381)
Acquisition of subsidiaries			-				19,168				19,168
Capital transactions with noncontrolling interests and other			32,326				(33,058)				(732)
Comprehensive income (loss):
Net income			124,449				3,079				127,528
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments			(72,743)				(2,300)				(75,043)
Net unrealized gains and losses on securities			(1,585)				96				(1,489)
Net gains and losses on derivative instruments			1,962				(29)				1,933
Pension liability adjustments			(221)				39				(182)
Total comprehensive income			51,862				885				52,747
Repurchase of treasury stock, net			(5,022)				-				(5,022)
Balance at June 30, 2010			2,699,378				176,905				2,876,283
Balance at December 31, 2008			2,659,792				191,190				2,850,982
Dividends paid to stockholders of Canon Inc.			(67,897)				-				(67,897)
Dividends paid to noncontrolling interests			-				(2,223)				(2,223)
Capital transactions by consolidated subsidiaries and affiliated companies and other			118				(492)				(374)
Comprehensive income (loss):
Net income (loss)			33,349				432				33,781
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments			58,981				(898)				58,083
Net unrealized gains and losses on securities			1,612				221				1,833
Net gains and losses on derivative instruments			(1,676)				8				(1,668)
Pension liability adjustments			(1,096)				340				(756)
Total comprehensive income (loss)			91,170				103				91,273
Balance at June 30, 2009			2,683,183				188,578				2,871,761

CANON INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

(9)		Net Income Attributable to Canon Inc. Stockholders per Share
		A reconciliation of basic and diluted net income per share computations for the six months ended June 30, 2010 and 2009 is as follows:

		Millions of yen
		Six months ended				Six months ended
		June 30, 2010				June 30, 2009
Net income attributable to Canon Inc.			124,449				33,349
		Number of shares
		six months ended				Six months ended
		June 30, 2010				June 30, 2009
Average common shares outstanding			1,236,091,586				1,234,484,960
Effect of dilutive securities:
Stock options			43,270				-
Diluted common shares outstanding			1,236,134,856				1,234,484,960
		Yen
		Six months ended				Six months ended
		June 30, 2010				June 30, 2009
Net income attributable to Canon Inc. stockholders per share:
Basic			100.68				27.01
Diluted			100.68				27.01

A reconciliation of basic and diluted net income per share computations for the three months ended June 30, 2010 and 2009 is as follows:

		Millions of yen
		Three months ended				Three months ended
		June 30, 2010				June 30, 2009
Net income attributable to Canon Inc.			67,638				15,605
		Number of shares
		Three months ended				Three months ended
		June 30, 2010				June 30, 2009
Average common shares outstanding			1,237,304,166				1,234,483,059
Effect of dilutive securities:
Stock options			70,353				-
Diluted common shares outstanding			1,237,374,519				1,234,483,059
		Yen
		Three months ended				Three months ended
		June 30, 2010				June 30, 2009
Net income attributable to Canon Inc. stockholders per share:
Basic			54.67				12.64
Diluted			54.66				12.64