A. History and development of the Company Canon Inc. is a joint stock corporation ( kabushiki kaisha ) formed under the Companies Act of Japan. Its principal place of business is at 30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo 146-8501, Japan. The telephone number is +81-3-3758-2111. The Company was incorporated under the laws of Japan on August 10, 1937 to produce and sell Japan’s first focal plane shutter 35mm still camera, which was developed by its predecessor company, Precision Optical Research Laboratories, which was organized in 1933. In the late 1950s, Canon entered the business machines field utilizing technology obtained through the development of photographic and optical products. With the successful introduction of electronic calculators in 1964, Canon continued to expand its operations to include plain paper copying machines, faxes, laser printers, bubble jet printers, computers, video camcorders and digital cameras. In 2016, Canon acquired Toshiba Medical Systems Corporation (Canon Medical Systems Corporation “CMSC” as of January 4, 2018) and has expanded its medical business. In 2022, 2021, and 2020, Canon’s increases in property, plant and equipment were ¥156,593 million, ¥151,914 million and ¥132,302 million, respectively. In 2022, the increases in property, plant and equipment were mainly used to expand production capabilities in both domestic and overseas regions, and to bolster Canon’s production-technology-related infrastructure. In addition, Canon has been continually investing in tools and dies for business machines, in which the amount invested is generally the same each year. For 2023, Canon projects to invest in property, plant and equipment of approximately ¥210,000 million. This amount is expected to be spent for investments in new production plants and new facilities of Canon. Canon anticipates that the funds needed for this increase will be generated through operating cash inflows. For information regarding the Company’s voluntary delisting of its ADSs from the NYSE, which became effective on March 6, 2023, please see Item 9.A. “Trading in foreign markets” of this annual report on Form 20-F. The SEC maintains a website at https://www.sec.gov that contains reports and proxy information regarding issuers that file electronically with the SEC. Some of the information may also be found on Canon’s website at https://global.canon/en. 12 Table of Contents B. Business overview Canon is one of the world’s leading manufacturers of office MFDs, laser printers, inkjet printers, cameras, medical equipment and lithography equipment. Canon sells its products principally under the Canon brand name and through sales subsidiaries. Each of these subsidiaries is responsible for marketing and distribution to retail dealers in an assigned territory. In 2022, 78.5% of consolidated net sales were generated outside of Japan, 31.1%, 25.6% and 21.8% generated in the Americas, Europe and Asia and Oceania, respectively. Canon’s strategy is to develop innovative, high value-added products incorporating advanced technologies. Canon’s R&D activities range from basic research to product-oriented research directed at maintaining and increasing Canon’s technological leadership in the marketplace. Canon will work to realize the optimized global allocation of its production assets based on changes in local conditions in each country and region. Canon has manufacturing subsidiaries in a variety of countries and regions, including the United States, Germany, France, the Netherlands, Taiwan, China, Malaysia, Thailand, Vietnam and the Philippines. As a concerned member of the world community, Canon emphasizes recycling and has increased its use of clean energy sources and cleaner manufacturing processes. Canon has also launched programs to collect and recycle used Canon cartridges and to refurbish used Canon MFDs. In addition, Canon has removed virtually all environmentally unfriendly chemicals from its manufacturing processes. Products Canon operates its business in four segments: the “Printing Business Unit,” the “Imaging Business Unit,” the “Medical Business Unit”, and the “Industrial Business Unit”. See Note 23 for explanation of changes in the year. - Printing Business Unit – Canon manufactures, markets and services a full range of home, office and professional printers through variety of printing technologies such as inkjet and electrophotography. Canon also delivers added value to customers through software, services and solutions. For office MFDs, following the launch of the “imageRUNNER ADVANCE DX” series in 2020 and 9 models in the 3 series in 2021, Canon introduced 4 new models in 2022 and further strengthened “imageRUNNER ADVANCE DX” series lineup and awarded as “2022-2024 Most Reliable A3 Brand” by trusted independent testing farm, Buyers Laboratory, a division of Keypoint Intelligence, in recognition of the high reliability of products. Canon is also providing a software named “uniFLOW Online” that extends the functions of the new “imageRUNNER ADVANCE DX” by connecting them to cloud services. In addition to cloud integration and enhanced security, Canon has newly introduced “Hybrid Work Print Standard” service to enable secured and controlled print at work-from-home environment by combining office MFDs and home inkjet printers via “uniFLOW Online”. In order to maintain and improve competitiveness in the future, Canon will continue to strive to further enhance its product lineup in line with market trends, strengthen its ability to respond to solutions, and improve its sales capabilities to meet increasingly sophisticated customer demand. In production printing, Canon launched 3 new models as “imagePRESS V series”, which includes the “imagePRESS V900” for compactness and easier operability, “imagePRESS V1000” supporting high-mix 13 Table of Contents low-volume production with better speed and media handling capability and “imagePRESS V1350” as a flagship with greatest productivity and robustness to reduce delivery time for high-volume output. Combining remote print management software “PRISMAremote Manager”, helps reduce less downtime through total print operation visibility at factory. Regarding large-format inkjet printers, Canon offers the “imagePROGRAF PRO” series, which features newly developed 12-color “LUCIA PRO ink” which significantly improves color reproduction and expression in dark areas to meet the high-quality image requirements of art professionals. Canon also offers the “imagePROGRAF TZ/TX/TM/TA” series, which is equipped with “LUCIA TD”, a five-color pigment ink that enables high-quality printing according to a variety of printing applications and paper suitability, for large-format printing needs, ranging from large-volume printing of drawings at design offices to CAD and poster printing at companies and stores. Canon also offers the “imagePROGRAF GP” series which is equipped with fluorescent ink, the first in the industry, for brighter and softer color reproduction in 2021. For the high-end production inkjet market Canon offers industry-leading, continuous feed printers for massive print volumes at highest efficiency with highest-quality results in full color. The “ColorStream” Series inkjet press provides a modular and customizable offering with highest productivity and flexibility for color and monochrome production of transaction, TransPromo, direct mail, book and manual applications including security inks such as Magnetic ink character recognition (“MICR”) or invisible ink. The “ProStream” Series is a unique breed of fast, high-productivity continuous feed inkjet presses combining the vibrant colors and productivity of offset with the variable-data versatility of digital printing. As for high speed production cutsheet inkjet printers, Canon provides the “varioPRINT iX” series that has revolutionized the commercial printing business experience. It combines stunning image quality and a wide media range with the high productivity and attractive cost-efficiency of inkjet. The “varioPRINT iX” series press offers high uptime, reliability, and productivity to produce more in less time. It is ideal for printing companies who need predictable and fast production with minimal calibration and setup so that they can handle and fulfill any job based on the agreed turnaround time and price, resulting in more profit and more business for Canon’s customers. In the large format graphic arts market, Canon provides unique UV LED solutions under the “Colorado” and “Arizona” brands, targeting best-in-class productivity combined with lowest cost of ownership to enable professional print providers to deliver a wealth of graphics and industrial applications to their customers. Inside the “Colorado”, the Canon UVgel technology provides unrivalled productivity in a unique process that retains the advantages of prevailing printer technologies, while eliminating many of the compromises. The “Colorado” offers an impressive application range, thanks to two additional technologies: the more flexible and stretchable formulation of the UVgel 460 inks and the FLXfinish+ technology. The UVgel 460 inks provide image stability even when folded, bent and wrapped. And with the FLXfinish+ technology, you can print your applications both with a flawless glossy and a luxurious matte finish, independent of media finish, expanding the range of your artistic freedom Regarding inkjet printers, Canon offers a wide range of products to print, scan and copy with excellent usability at reasonable running cost for the various needs of its customers. Especially since the COVID-19 pandemic, the use of inkjet printers for home has increased due to the diversification of work styles and learning methods. For home users, Canon introduced “XK110/TS8630” which excels at both photo and document with a new user interface to fit customers usage to make operation easier with fewer steps, and “G3370/G1330” which was introduced to heavy users at home and achieves high volume printing and low running cost through an extra-large capacity tank. In business inkjet market, demand to print documents and creatives with reasonable cost at diversified locations including office and home as places and ways of working diversify is increasing. To support 14 Table of Contents various business users, Canon introduced “GX4030” which uses full pigment ink system for printing high-quality business documents at a low running cost. In addition, “GX5030” has a small footprint, low running cost, high productivity and adaptability to a wide variety of papers. As for laser printers, dealers and users are reducing their inventories due to concerns over the economic outlook and rising interest rates. In addition, as a long-term trend, there are concerns over lagging growth of the entire market affected by decrease in demand for printing, which is caused by changes in users printing behavior due to the prevalence of smartphones, cloud computing, etc. In response, Canon has focused on expanding sales of high value-added products from mid to high-end class, especially for multifunction printers (“MFPs”). In addition, Canon aims to increase sales volume and market share by enhancing competitiveness and customer value with even more focus on contractual business which engages with customers for a certain period, accompanied with leveraging technical innovation and so forth. The pandemic caused lockdowns in China where Canon has production facilities, which caused those facilities to see declines in operating capacity as well as a shortage of raw materials and parts. This has led to a temporary shortage of printer supplies. Canon will strive to ensure a stable supply of products by diversifying the supply chain. - Imaging Business Unit – Canon manufactures and markets digital cameras, as well as lenses and various related accessories. In interchangeable lens digital cameras, to further expand the lineup of the “EOS R System”, Canon launched “EOS R7” and “EOS R10”.While these two models incorporate APS-C sensors, they also inherit, among others, the autofocus subject detection technology of the high-end model, “EOS R3”, and offer high performance in all aspects of still image and video capture. Canon expects professional and advanced amateur users to, for example, use these as sub-cameras, and that it will also encourage people to replace their SLR cameras or step-up from entry-class cameras. As for the camera market, due to the launch of new mirrorless cameras and interchangeable lenses by each company, demand remained strong despite the economic slowdown. As a result, Canon has maintained a leading market share in interchangeable lens digital cameras in terms of volume in the major regions/countries, such as the United States, Europe, China and Japan. Canon aims to expand the imaging domains of interchangeable lens digital cameras, and believes there remains considerable room for future growth through development of new products based on state-of-the-art technology such as higher picture quality, small and lightweight body and versatile movie/network functions. In interchangeable lenses for digital cameras, Canon expanded its RF lens lineup by introducing six interchangeable lenses, including two EOS RF-S mirrorless APS-C lenses. Sales of RF lenses also grew significantly thanks to synergies with “EOS R” series camera body. As for compact digital cameras, while the overall market has been shrinking, Canon will continue to strengthen its premium lineup and strive to improve its profitability. Moreover, Canon is developing new camera genres, such as “PowerShot ZOOM” and “PowerShot PICK”, in order to discover new needs for ease of use and shooting in specific scenes. In the compact photo printer market, Canon launched the “SELPHY CP1500”. With its advantages, such as easy operation, portability, lab-quality photo print, and durability, “SELPHY” has gained a strong market position in each region. Canon plans to tap into new customer demand and to maintain its lead in this market. As a new business, Canon is also working on the Mixed Reality (MR) business, which fuses real images with virtual 3D CG images at the same time. 15 Table of Contents Canon has expanded its lineup by introducing the compact and lightweight model “MREAL S1” in 2021 and the wide viewing angle model “MREAL X1” in 2022. Canon will continue to provide solutions utilizing 3D data in a wide range of fields, including manufacturing industry. In the network camera field, businesses are being established with the camera video based problem-solving business model. In Japan, manufacturing solutions business remained solid and the sales grew steadily despite the worldwide disruption in production and logistics. In 2022, Canon launched six new models with significantly improved performances, including the “VB-H47”. Being able to capture the video clearly even in dark places or in the environments where there is a difference in brightness, such as backlight, the new models contribute to the improvement of accuracy of analysis in combination with video content analytics software. Also, from December 2022, a microSD card-type hardware “AI Accelerator AS-AN11” that turns network cameras into AI cameras and three dedicated video analytics software, “Intrusion Detection”, “Parking Detection”, and “Video Difference Detection” were successively released for the Japanese market. Since no dedicated server or cloud for analysis is required, it is possible to build a simple system with low initial investment and running costs. Sales of products for the advanced surveillance market are steadily growing. They meet the strict requirements of port surveillance, etc. by taking advantage of their ultra-high-sensitivity performance that enables them to capture color video even in complete darkness. Canon acquired Axis Communications, the industry leader in network video, in 2015. In 2022, Axis showed strong growth, which was illustrated by the launch of around 130 new products and the opening of 4 new AECs (Axis Experience Center). This means that Axis now has 34 AECs around the world, with the purpose of being closer to the customers. For the industry, to promote DX (Digital Transformation), Canon offers three new video solutions. (1) Canon provides Automated Guided Vehicle (“AGV”) manufacturers with “Vision-based Navigation Software”, a video content analytics software that includes “Visual SLAM technology”, which uses cameras to simultaneously estimate three-dimensional information of the surrounding environment, and position and posture. Canon aims to expand the range of applications beyond the logistics field. (2) For the “Vision Edition Series”, video analytics software utilizing network cameras, Canon released the “Vision Edition 2”, a new version which extends image processing capabilities and improves connectivity with external devices and support by Al. Enabling to build more flexible and simple systems, Canon continues to meet diversified and sophisticated needs of improving productivity on the operation site. (3) For the inspection of bridges and tunnels using image data, Canon has been contracted for the detection of cracks as a BPO (Business Process Outsourcing) service using AI technology, but now has started to provide as a cloud service. In the professional video market, the demand continues for large amounts of high-quality contents due to the expansion of viewing through OTT * and video content due to the spread of streaming and internet video, and Canon has noted the rise of users such as “video creators”. Moreover, Canon is also aware of the emergence of a market that is different from the past, such as in-house production in enterprise and education market. In the video production market, Canon is experiencing the demand for smaller and lighter production equipment, production efficiency, and manpower reduction. In the live streaming and broadcast market such as live sports and live music, the revival of various events that had been stagnant during the COVID-19 pandemic has led to continued investment in equipment, and new trends are appearing, such as video expression with a shallow depth of field that utilizes large-format sensors. Among them, Canon has introduced the “EOS R5C”, a compact, lightweight digital cinema camera that built-in 8K/RAW recording for users who demand high performance in both video and still images, the “CN-E20·50mm” and the ”CN-E45·135mm”, a full-frame cinema zoom lens that flexibly supports demand for more efficient video production, the “CN8x15”, a cine servo lens that can be used in a wide range of applications from recording to live broadcasting, the “EU-V3”, a function expansion unit that enhances the operability of 16 Table of Contents large-format cameras for live production, and the “CR-N700”, a top-of-the-line 4K remote camera for video production. Furthermore, in the area of video solutions, Canon will work to create business in “volumetric video”, which is expected to expand in the market, such as new video expression in sports broadcasting, entertainment and commercials, and data utilization in metaverse. Canon will continue to launch products and solutions that capture changes in the market to meet the needs of a wide range of professionals in video production and contribute to the development of video culture. * OTT stands for over the top. A media service that provides video content directly to viewers via the Internet, which has been provided by terrestrial broadcasting, satellites, cable television, etc. - Medical Business Unit – Canon markets diagnostic imaging systems, including Computed tomography (“CT”) systems, Magnetic resonance imaging (“MRI”) systems, Diagnostic ultrasound systems, and Diagnostic X-ray systems, as well as Clinical laboratory systems and Healthcare IT solutions to customers in more than 150 countries and regions around the world, offering technology that enables early detection and fast diagnosis. Canon strives to help customers provide reliable, patient-friendly healthcare and achieve efficiency as well as cost reduction through its medical systems and services. In the medical systems business, Canon is advancing efforts with “Altivity”, an AI innovation brand, to deliver uncompromised quality and value across the entire care pathway by combining extensive intelligence and know-how garnered through medical practice while leveraging using AI to bring better quality patient care by streamlining workflow for prevention, diagnosis, treatment and prognosis for enhanced efficiency. Canon has long enjoyed the leading position in the domestic CT market. In 2022, Canon introduced the “Aquilion Serve”, a new 80/160-slice CT scanner and the 1.5T MRI “Vantage Fortian”, a high performance yet easy-to-use system with automated scan planning feature. The machine comes with “Advanced intelligent Clear-IQ Engine (AiCE) which uses deep learning algorithm to deliver higher image quality. These CT and MRI systems install cameras developed by Canon to detect patient positioning, thereby making operational adjustments easier and reducing scan time. The new ultrasound solutions, the “Aplio flex/ Aplio go,” add new value and bring much efficiency in workflow by taking advantage of the applications developed using AI to be incorporated in its small footprint. It was launched in Japan in 2022 and will be followed by other regions. Canon recently announced its decision to establish a new subsidiary “Canon Healthcare USA, INC.” with the aim to accelerate the growth of its medical business by strengthening its presence in the highly influential US medical market. A portion of the upstream marketing operations will be transferred to the new company and by establishing a network with key opinion leaders in the industry in the United States, Canon will develop and propose products and solutions that address the trends and needs of the medical market. In November, Canon installed a photon counting CT “PCCT” system using detector technology of its wholly owned subsidiary, Redlen Technologies Inc., in National Cancer Center Japan to conduct joint research for the commercialization of the PCCT technology with a similar initiative underway with medical institutions in the United States. Building on its leading position in the domestic CT systems market, Canon’s goal is to become the leader in the global CT market at the earliest opportunity. - Industrial Business Unit - In the semiconductor lithography equipment market, although uncertainty in the timing of economic recovery from COVID-19 and the intensification of trade friction has caused concerns primarily related to capital expenditure, such matters resulted in only minor impact to the market. Capital expenditures for lithography 17 Table of Contents equipment, particularly for logic devices and sensors, remained strong. In the back-end lithography equipment market, demand for higher integration and thinner semiconductor chips increased, leading to increased capital expenditures for higher memory capacity using Through-Silicon Via (“TSV”) technology and wafer-level packaging. Responding to diversified semiconductor applications, Canon has established “design-in” business style, which enables customer needs to be reflected in the early stage of its product development process. As a result of its steady progress in developing value-added products, Canon offers a wide variety of products for Internet of Things (“IoT”) devices and automotive semiconductors, which are rapidly becoming more widespread. As for memory productions, Canon is ready to expand its market share further through sale of the KrF scanner “FPA-6300ES6a” which realized the highest level of productivity and overlay, and by continuous upgrades of i-line stepper “FPA-5550iZ2”. Canon also launched “Lithography Plus”, a solution platform to enhance its services for working lithography equipment in the market. Canon will contribute to the productivity improvement of users who use Canon’s lithography equipment, including real-time analysis of the equipment, automatic recovery in case of malfunction, and the proposal of optimal manufacturing conditions. In the field of Nanoimprint Lithography (“NIL”) equipment, Canon is accelerating preparations for mass production of memory devices, while conducting joint development with various manufacturers and promoting activities to expand the scope of NIL application. The FPD lithography equipment market is shrinking rapidly due to the falling off of special demand experienced in the COVID-19 pandemic, as well as worldwide inflation and economic slowdown. As a result, customer investment plans have been temporarily postponed, but demand for Organic Light Emitting Diode (“OLED”) panels for PCs, tablets and other products remains strong, and Canon expects the market to recover in late 2023 or early 2024. The flat panel display market, in which demand for thinner panels increases, is expected to grow in size, increase in 4K/8K resolution, and shift to high-quality displays such as OLED. Canon aims to further expand its market share with the “MPAsp-H1003T”, lithography equipment for 8th generation glass substrates that achieves high productivity by exposing high-definition 65 inch panels in a batch, and the “MPAsp-E903T”, lithography equipment for 6th generation glass substrates that meets the need for further high definition in small and medium sized display manufacturing. In addition, demand for displays for IT devices such as laptops and tablets is growing due to the spread of online meetings and education. In order to meet such market needs, Canon has added the “MPAsp-H1003H”, lithography equipment for displays for IT devices that offers both high productivity and high definition to its lineup. In the OLED display manufacturing equipment market, Canon will not only work to maintain its overwhelming competitiveness in the field of small- and medium-sized panels, but also continue the development of equipment for large-sized panels. 18 Table of Contents NET SALES BY SEGMENT The following table presents Canon’s net sales by segment for each of the periods shown. Years ended December 31 2022 change 2021 change 2020 (Millions of yen, except percentage data) Printing 2,261,938 16.7 % 1,938,847 7.4 % 1,804,427 Imaging 803,480 22.9 653,532 20.7 541,314 Medical 513,331 6.9 480,362 10.2 436,074 Industrial 329,232 -2.5 337,721 22.0 276,806 Others and Corporate 223,021 19.5 186,593 10.3 169,140 Eliminations (99,588 ) — (83,698 ) — (67,518 ) Total 4,031,414 14.7 % 3,513,357 11.2 % 3,160,243 Notes: 1. Based on the realignment of Canon’s internal management structure, from 2022, Canon has changed the name and structure of segments from Industrial and Others Business Unit and Corporate and eliminations to Industrial Business Unit, Others and Corporate and Eliminations. Net sales by segment for the fiscal years ended December 31, 2021 and 2020 also have been reclassified. NET SALES BY GEOGRAPHIC AREA The following table presents Canon’s net sales by geographic area for each of the periods shown. Years ended December 31 2022 change 2021 change 2020 (Millions of yen, except percentage data) Japan 864,808 4.1 % 830,378 3.0 % 806,305 Americas 1,255,405 29.6 968,839 13.7 852,451 Europe 1,034,008 15.5 894,898 12.5 795,616 Asia and Oceania 877,193 7.1 819,242 16.1 705,871 Total 4,031,414 14.7 % 3,513,357 11.2 % 3,160,243 Seasonality Canon’s sales for the fourth quarter are typically higher than for the other three quarters, mainly due to strong demand for consumer products, such as cameras and inkjet printers, during the year-end holiday season. In Japan, corporate demand for office products peaks in the first quarter, as many Japanese companies end their fiscal year in March. Sales also tend to increase at the start of the new school year in each region. Sources of supply Canon purchases materials such as glass, aluminum, plastic, steel and chemicals for use in various product components and in the manufacturing process. Canon procures raw materials from all over the world and selects suppliers based on a number of criteria, including environmental friendliness, quality, cost, supply stability and financial condition. Prices of some raw materials fluctuate according to market trends. Although Canon is currently focusing on globalizing supplies and improving raw material resource management strategies, and believes that it will be able 19 Table of Contents to continue procuring sufficient quantities of raw materials to meet its needs, there can be no assurance that supply shortages will not occur or that raw materials, such as crude oil, will be available at competitive prices, or at all, in the future. Marketing and distribution Canon sells its products primarily through subsidiaries organized under regional marketing subsidiaries: Canon Marketing Japan Inc. in Japan; Canon U.S.A., Inc. in North and South America; Canon Europe Ltd. and Canon Europa N.V. in Europe, Russia, Africa and the Middle East; Canon (China) Co., Ltd. in Asia outside Japan; and Canon Australia Pty. Ltd. in Oceania. Each subsidiary is responsible for its own market research and for determining its sales channels, advertising and promotional activities. Each subsidiary provides tailor-made solutions to a diverse range of unique customers and aims to advance Canon’s reputation as a highly trusted brand. In Japan, Canon sells its products primarily through Canon Marketing Japan Inc., mainly to dealers and retail outlets. In the Americas, Canon sells its products primarily through Canon U.S.A., Inc. and Canon Canada Inc., mainly to dealers and retail outlets. In Europe, Canon sells its products primarily through Canon Europa N.V., which sells mainly through subsidiaries or independent distributors to dealers and retail outlets in each locality. In addition, MFDs are sold directly to end-users by several subsidiaries such as Canon (UK) Ltd. in the United Kingdom and Canon France S.A.S. in France. In Southeast Asia and Oceania, Canon sells its products through subsidiaries located in those areas. In addition, MFDs are sold directly to end-users in Australia by Canon Australia Pty. Ltd. For the medical business, CMSC sells its products directly or through regional marketing subsidiaries and distributors. Canon also sells laser printers on an OEM basis to HP Inc. HP Inc. resells these printers under the “HP LaserJet Printers” name. During 2022 and 2021, OEM sales to HP Inc. constituted 12.0% and 11.6%, respectively, of Canon’s consolidated net sales. Canon continues to enhance its distribution system by promoting the continuing education of its sales personnel and by optimizing inventory levels and business planning through weekly analysis of sales data. Service In Japan and overseas, product service is provided in part by independent retail outlets and designated service centers that receive technical training assistance from Canon. Canon also services its products directly. Most of Canon’s business machines carry warranties of varying terms, depending upon the model and country of sale. Cameras and camera accessories carry warranties that vary depending upon the model and country of sale. Canon services its office MFDs, and printers, and supplies replacement drums, parts, toner and paper. Most customers enter into a contract under which Canon offers consumables and parts as well as break fix activities in return mainly for a fixed amount in the contract plus a per copy charge. MFDs not covered by a service contract may be serviced from time to time by Canon or local dealers for a fee. 20 Table of Contents For diagnostic imaging systems, including CT, MRI, ultrasound, and X-ray systems, Canon provides comprehensive repairs, service, and maintenance to ensure that customers are able to use these products to their full potential at all times. Canon maintains support contracts with customers and has technical call centers. In addition, to help ensure customer satisfaction, Canon offers service training programs for engineers working in overseas medical institutions. For the service contracts of the products of the Medical Business Unit, customers pay stated fixed fees for the stand ready maintenance service. Patents and licenses Canon holds a large number of patents, design rights and trademarks in Japan and abroad to protect proprietary technologies stemming from its R&D activities. Canon utilizes these intellectual property rights as important strategic management tools. For example, Canon leverages its intellectual property rights to expand its product lines and business operations and to form alliances and exchange technologies with other companies. Canon has granted licenses with respect to its patents to various Japanese and foreign companies, most often with respect to electrophotography, laser printers, multifunction printers, facsimile machines and cameras. Companies to which Canon has granted licenses include: Kyocera Document Solutions Inc. Electrophotography Brother Industries, Ltd. Electrophotography and facsimile machines Canon has also entered into cross-licensing agreements with other major industry participants. Companies with which Canon has entered into cross-licensing agreements include: HP Inc. Bubble jet printers Xerox Corporation Business machines International Business Machines Corporation Information handling systems Eastman Kodak Company Electrophotography and image processing technology Seiko Epson Corporation Information-related instruments Canon has placed a high priority on the management of its intellectual property. Some products that are material to Canon’s operating results incorporate patented technology. Patented technology is critical to the continued success of Canon’s products, which typically incorporate technology from dozens of different patents. However, Canon does not believe that its business, as a whole, is dependent on, or that its profitability would be materially affected by the revocation, termination, expiration or infringement upon, any particular patent, copyright, license or intellectual property rights or group thereof. Competition Canon encounters intense global competition in all areas of its business. Canon’s competitors range from some of the world’s major multinational corporations to smaller, highly specialized companies. Canon competes in a number of different business areas, whereas many of its competitors focus on one or more individual areas. Consequently, Canon may face significant competition from entities that apply greater financial, technological, sales and marketing or other resources than Canon to their activities in a particular market segment. The principal elements of competition that Canon faces in each of its markets are technology, quality, reliability, performance, price and customer service and support. Canon believes that its ability to compete effectively depends in large part on conducting successful R&D activities that enable it to create new or improved products and release them on a timely basis and at commercially attractive prices. The competitive environments in which each product group operates are described below: 21 Table of Contents - Printing Business Unit - The markets for this segment are highly competitive. Canon’s primary competitors in the production print and business print market are Xerox Corporation ; FUJIFILM Business Innovation Corp. ; Ricoh Company, Ltd.; Konica Minolta Inc.; HP Inc.; and Lexmark International, Inc. Canon is one of the leading global manufacturers of office MFDs and laser printers. In addition to the general elements of competition described above, Canon’s ability to compete successfully in these markets also depends significantly on whether it can provide effective, broad-based “business solutions” to its customers and respond to interrelated customer needs. In particular, the ability to provide equipment and software that connect effectively to networks (ranging in scope from local area networks to the Internet and the cloud) is often a key to Canon’s competitive strength. In the United States, Europe and Japan, Canon is one of the market leaders in all areas of the business machine market. Canon’s primary competitors in the inkjet printer market are HP Inc., Seiko Epson Corporation and Brother Industries, Ltd. - Imaging Business Unit – Canon has continued to invest aggressively in competitive new products and intends to maintain its position in this market. Canon’s primary competitors in the interchangeable-lens digital camera market are Sony Group Corporation and Nikon Corporation. The mirrorless camera market is growing, especially the demand for professional and advanced amateur users is strong. Canon will work to further strengthen its lineup of EOS R System cameras and RF lenses to facilitate its aim of expanding its market share. Canon will seek to take advantage of its status as the major brand in the industry, along with its economies of scale, in order to maintain profitability. As for network cameras, the market is competitive, and competition is driven by higher functional requirements and price pressure from customers. Canon’s primary competitors are Hangzhou Hikvision Digital Technology Co., Ltd. and Panasonic Corporation. Canon is developing the innovative technology to continue to be a global market leader in this industry. - Medical Business Unit – Canon’s primary competitors in the diagnostic medical imaging market are General Electric Company, Siemens Healthineers AG, Koninklijke Philips N.V., and FUJIFILM Corporation. Canon has also new competitors such as United Imaging Healthcare Co. Ltd., a Chinese vendor. The markets for this segment are highly competitive. Canon has been consistently involved in the medical care business, from development to manufacturing, sales, and service. Canon believes that it provides high-resolution images that enable more accurate diagnoses. For example, Canon has developed several world’s-first technologies, such as an ultrahigh-resolution CT scanner with twice the spatial resolution in both the in-plane direction and the axial direction compared to a conventional CT scanner, and ultrasound technology that can perform imaging of very fine, slow-flowing bloodstreams that previously could not be visualized. Canon will continue to bring the latest diagnostic imaging systems to the market. 22 Table of Contents - Industrial Business Unit - Very severe competition continues in the markets for lithography equipment used in the production of semiconductor devices and FPD. In order to produce lithography equipment that can provide ultra-fine processing, an integration of advanced optical, control and system technologies is required, along with continuous investment in technology development. The main competitors in these markets are Nikon Corporation, for semiconductor and FPD lithography equipment, and ASML Holding N.V., for semiconductor lithography equipment. Canon believes that it has helped its customers improve their productivity by continuously improving the cost performance of semiconductor lithography equipment using the i-line and KrF laser light sources. In particular, equipment using the i-line has captured a large share of the global market, satisfying needs by quickly providing products which correspond to the diversification of devices associated with the trend of IoT. Canon believes its FPD lithography equipment with a common platform offers excellent productivity and reliability that has helped it capture market share in the industry-leading South Korean market. Canon’s sales and service support systems have also received high accolades from the customers in these markets. In the trend of demand expansion for 4K/8K displays and OLED panels, Canon believes it has also been meeting the needs of panel makers by continuously offering new products with high productivity and high resolution. Environmental regulations Canon is subject to a wide variety of laws, regulations, industry standards and global initiatives relating to energy and resource conservation, recycling, global warming, pollution prevention, pollution remediation and environmental health and safety. Some of the environmental laws, regulations, industry standards and global initiatives that affect Canon’s businesses are summarized below. In line with the environmental initiatives discussed below, Canon has made, or may make, commitments that require the investment of significant effort, resources and management time. Circumstances may arise, including those beyond Canon’s control that may require Canon to revise these commitments or timelines for the achievement thereof. 1. Measures Addressing Global Climate Change The United Nations adopted the 2030 Agenda for Sustainable Development Goals (“SDGs”) on September 25, 2015, under the UN Sustainable Development Summit. SDGs cover global issues aimed at transforming the world toward sustainable development, which are composed of 17 goals and 169 targets. The goals and targets cover a wide range of global issues, including the environmental areas such as climate change, sustainable energy, efficient use of natural resources and reduction of waste. Based upon the SDGs, member states will introduce national policies and initiatives to tackle such global environmental issues, and Canon may need to implement further actions to respond to potential national initiatives. The Paris Agreement on climate change was adopted in 2015 and entered into force in 2016. Subsequently, in order to limit the temperature rise to 1.5 degrees Celsius, EU member states and other major countries such as U.S., China, Japan and India declared to achieve net-zero CO2 emissions toward 2050 to 2070. Future governmental carbon neutral policies or regulations may affect Canon’s business operations, products, services, procurements and costs. Canon aims to achieve net-zero CO2 emissions from its business activities by 2050 to realize carbon free society. Canon has established 2022-2025 Mid-Term Environmental Goals and monitors its progress to be reported to the CEO for review on a yearly basis. Canon is implementing initiatives to achieve these goals, which focus on “Lifecycle CO2 emissions improvement index per product by average 3% improvement”, “Raw materials and usage CO2 emissions improvement index per product by average 3% improvement”, and “Improve 23 Table of Contents energy consumption basic unit at operational sites by 1.2% (compared to the previous year)”. In 2022, Canon has improved to reduce its “Life Cycle CO2 emission” per product, which was an average improvement of 4.1% (2008—2022) and cumulative 43% as compared with 2008. Total volume of lifecycle CO2 emissions in 2022 was 8.3 million tons*, which we received a third party limited assurance in March 2023. For contributing to a circular economy, Canon promotes reductions in resource consumption, product-to-product recycling, recycling-conscious design, designing smaller and lighter products and other various activities. Canon has disclosed climate change-related information based on the Task Force on Climate-related Financial Disclosure (“TCFD”) framework set by the Climate Disclosure Standard Board (“CDSB”) and also has disclosed environmental impact information through its Canon Sustainability Report and a platform of the Carbon Disclosure Project (“CDP”). Canon continues to pursue CO2 emission reductions both locally and globally through energy-efficient product design and improvement of logistics and factory operations. * Total volume of lifecycle CO2 emissions contains the data of the carbon dioxide equivalent of greenhouse gas (GHG) including PFCs, HFCs, SF6, N2O, methane, and NF3. The scope of the total volume of lifecycle CO2 emissions covers consolidated subsidiaries of Canon Group. 2. Measures to Address the Circular Economy and Sustainable Products The movement toward the realization of the circular economy is also accelerating. In Europe, the new Circular Economy Action Plan was announced by the EU Commission in 2020, and a road map of the regulations was presented. In March 2022, in line with the new plan, EU Commission published a legislative package, “Sustainable Products Initiative”, including the proposal for a new law the Ecodesign for Sustainable Products Regulation (“ESPR”) that would cover all physical products and require energy-efficiency, design for circularity and detailed information provision, to replace the existing measures regulated in the current Energy-related Products Directive. The implementing measures in line with the draft ESPR will be proposed from 2023, and some of them would cover Canon’s products. Regarding imaging equipment, the EU Commission has decided to launch the preparation of regulatory measures for this product group including consumables, in place of the former industrial voluntary agreement. The draft regulation on imaging equipment and consumables is announced to be proposed in 2023, and would include strict requirements on energy and resource efficiency In addition, to the ecodesign movement,increasing public concern about single-use plastics, which are considered one of the causes of marine pollution, has led various countries to legislate to ban the use of single-use plastics in packaging materials. Canon is continuing to comply with requirements related to ecodesign and single-use plastics. However, the requirements are expected to be challenging, and achieving compliance will likely increase Canon’s costs, especially by required design changes and circularity operation. 3. European Union Directive on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (“the RoHS Directive”) Under the RoHS Directive, from July 1, 2006, companies are required to ensure that electrical and electronic equipment (“EEE”) sold in the European Union does not contain lead, cadmium, hexavalent chromium, mercury, polybrominated biphenyls or polybrominated diphenyl ethers. The scope of products covered was expanded to include medical and measurement equipment starting in July 2014. New subsidiary directive of the RoHS Directive restricting an additional four substances, Bis (2-ethylhexyl) phthalate (“DEHP”), Butyl benzyl phthalate (“BBP”), Dibutyl phthalate (“DBP”) and Diisobutyl phthalate (“DIBP”), was published in June 2015, and these substances were restricted starting in July, 2019. In 2018, study for more additional restricted substances was started, and the preparatory study for the next recast of RoHS was started in 2019. In parallel with 24 Table of Contents these developments, all the RoHS exempted applications for which the restricted substances can be used are now under review. If these exemptions expire and/or additional substances are restricted in the future, additional design changes may be required for Canon products, and cost of changing designs may increase total compliance costs. Similar chemical regulations have been enacted in various countries such as China, South Korea, India, UAE, EAEU and Saudi Arabia. 4. European Framework for the Management of Chemical Substances (“REACH Regulation”) The REACH Regulation was implemented in 2007. This regulation covers almost all chemicals (products in gaseous, liquid, paste or powder form) and articles (products in solid state) manufactured in or imported into the European Union. All chemicals manufactured in or imported into the European Union that exceed specific content thresholds must be registered. If certain substances of very high concern are contained in an article, the substances must be communicated to the recipient or consumer of the article. In addition, such information has to be registered on the new EU database called the “SCIP database” under Waste Framework Directive from January 2021. Canon has been disclosing necessary information through SCIP database since then. Furthermore, additional restrictions on the use of certain substances can be proposed at any time by the ECHA (European Chemical Agency) or member states, and, some of them have been already adopted and others are now under discussion. Manufacturers such as Canon must take steps to address such new restrictions. Canon continues to meet these existing and newly-added requirements under the REACH Regulation, and implementation of these requirements could increase Canon’s management costs. 5. Other Environmental Regulations In addition to the laws described above, various environmental laws and regulations may have been promulgated or enacted by European Union member states, states of the United States, emerging markets such as China, India, Russia, Vietnam, and other countries. Compliance with any such additional regulations may increase Canon’s costs and may adversely affect Canon’s operating results and financial condition. Other regulations Disclosure under Section 13(r) of the Securities Exchange Act of 1934 Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRA”) added Section 13(r) to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Section 13(r) requires an issuer to disclose in its annual or quarterly reports, as applicable, whether, during the reporting period, it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction. Disclosure is required even where the activities, transactions or dealings are conducted outside the U.S. by non-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law. During the year ended December 31, 2022, the following Canon affiliate engaged in the transactions described below that are required to be disclosed pursuant to Section 13(r) of the Exchange Act. These transactions were conducted in compliance with applicable law in the respective countries. • CMSC, a wholly-owned Japanese subsidiary of Canon Inc., had indirect sales transactions through independent distributors in Istanbul, Turkey, Sharjah, United Arab Emirates and Tehran, Iran for computed tomography, diagnostic ultrasound systems and service parts for those products with hospitals in Iran. It is our understanding that Iranian hospitals are owned or controlled by the Government of Iran (central or local government) and that their purchases are controlled through an agency of the Iranian Ministry of Health and Medical Education. Total gross sales under these contracts during the year 2022 were approximately ¥154 million. The net profit was substantially less than that. 25 Table of Contents As of the date of this report, Canon is not aware of any other activity, transaction or dealing by us or any of our affiliates during the year ended December 31, 2022 that requires disclosure in this report under Section 13(r) of the Exchange Act. Canon maintains policies and procedures designed to ensure that transactions, including transactions with Iranian counterparties, are conducted in accordance with applicable economic sanction laws and regulations. In addition, CMSC has indirect sales of medical equipment to unaffiliated distributors in Japan, which distribute the equipment to hospitals in Syria through unaffiliated third parties. Canon does not have any direct agreements, commercial arrangements, or other contacts with the governments of Syria, or with entities controlled by those governments. Total net sales to Syria in the year ended December 2022 was one-tenth of one percent (0.1%) or less of Canon’s total consolidated net sales for that period. Canon does not believe the transactions with Syria are material, either individually or in the aggregate, in quantitative or in qualitative terms. C. Organizational structure Canon Inc. and its subsidiaries and affiliates form a group of which Canon Inc. is the parent company. As of December 31, 2022, Canon Inc. had 330 consolidated subsidiaries and 10 affiliated companies accounted for by the equity method. The following table lists the significant subsidiaries owned by Canon, all of which are consolidated as of December 31, 2022. Name of company Head office location Proportion of ownership interest owned Proportion of voting power held Canon Marketing Japan Inc. Tokyo, Japan 57.8 % 58.5 % Canon U.S.A., Inc. New York, U.S.A. 100.0 % 100.0 % Canon Europa N.V. Amstelveen, The Netherlands 100.0 % 100.0 % Canon Medical Systems Corporation Tochigi, Japan 100.0 % 100.0 % D. Property, plants and equipment Canon’s manufacturing is conducted primarily at 29 plants in Japan and 13 plants in other countries and regions. Canon owns all of the buildings and the land on which its plants are located, with the exception of certain immaterial leases of land and floor space of certain of its subsidiaries. The names and locations of Canon’s plants and other facilities, their approximate floor space and the principal activities and products manufactured therein as of December 31, 2022 are as follows: Name and location Floor space (including leased space) Principal activities and products manufactured Domestic (Thousands of square feet) Headquarters, Tokyo 2,557 R&D, corporate administration and other functions Canon Global Management Institute, Tokyo 166 Training and administration Kawasaki Office, Kanagawa 1,882 R&D and manufacturing of production equipment and semiconductor devices; R&D of laser printers, toner cartridges and network cameras Kosugi Office, Kanagawa 378 Development of medical equipment Fuji-Susono Research Park, Shizuoka 932 R&D in electrophotographic technologies Ayase Plant, Kanagawa 394 R&D and manufacturing of semiconductor devices 26 Table of Contents Name and location Floor space (including leased space) Principal activities and products manufactured Domestic (Thousands of square feet) Hiratsuka Plant, Kanagawa 905 R&D of display products and manufacturing of semiconductor devices Tamagawa Office, Kanagawa 384 Quality engineering Oita Plant, Oita 487 Manufacturing of semiconductor devices Yako Office, Kanagawa 906 Development of inkjet printers, inkjet chemical products Utsunomiya Office, Tochigi 2,764 Manufacturing of interchangeable lenses and other applications, R&D in optical technologies, development and sales of broadcasting equipment, R&D, manufacturing, and servicing of semiconductor lithography equipment and FPD lithography equipment Toride Plant, Ibaraki 2,863 R&D in electrophotographic technologies, mass-production trials and supports; manufacturing of office MFDs, chemical products; training of manufacturing Ami Plant, Ibaraki 955 Manufacturing of FPD production-related equipment Canon Electronics Inc., Tokyo, Saitama and Gunma 1,421 Magnetic/business machine components, document scanners and handy terminals Canon Finetech Nisca Inc., Saitama, Ibaraki and Yamanashi 1,106 Development, production and sales of office MFDs peripherals, printers, DC motors Canon Precision Inc., Aomori 1,591 Micromotors, production of toner cartridges and sensors Canon Optron Inc., Ibaraki 144 Optical crystals (cameras, telescopes) and vapor deposition materials Canon Chemicals Inc., Ibaraki 1,896 Toner cartridges, advanced-function parts, plastic precision-molded parts and metal molds Canon Components, Inc., Saitama 710 Image sensor units, Printed Circuit Boards (“PCB”), inkjet cartridges and medical equipment Oita Canon Inc., Oita 2,096 Interchangeable-lens digital cameras, interchangeable lenses and digital camcorders Nagahama Canon Inc., Shiga 1,095 Laser printers, toner cartridges, A-Si drums and semiconductor production-related equipment Oita Canon Materials Inc., Oita 3,062 Chemical products for MFDs and printers 27 Table of Contents Name and location Floor space (including leased space) Principal activities and products manufactured Domestic (Thousands of square feet) Ueno Canon Materials Inc., Mie 654 Chemical products for MFDs and printers Fukushima Canon Inc., Fukushima 1,310 Inkjet printers, print heads, ink tanks and analysis of software Canon Semiconductor Equipment Inc., Ibaraki 242 Development and production of semiconductor production-related equipment Canon Ecology Industry Inc., Ibaraki 1,463 Recycling of toner cartridges, repair and recycling of office MFDs Fukui Canon Materials Inc., Fukui 192 OPC raw stock, material for optics and high water-repellent material Miyazaki Canon Inc., Miyazaki 652 Interchangeable-lens digital cameras and electronics packaging Canon Mold Co., Ltd., Ibaraki 375 Design and production of precise plastic molds Canon ANELVA Corporation, Kanagawa and Yamanashi 745 Development, production, sales and maintenance of semiconductor, electronic and R&D equipment Canon Machinery Inc., Shiga 557 Semiconductor and precision automation equipment Canon Tokki Corporation, Niigata and Kanagawa 371 OLED display manufacturing equipment, thin-film photovoltaic cell manufacturing equipment and vacuum process equipment Nagasaki Canon Inc., Nagasaki 477 Digital cameras and network cameras Canon Medical Systems Corporation, Tochigi 1,441 Development, manufacturing, sales and technical services of medical equipment Canon Electron Tubes & Devices Corporation, Tochigi 506 Development, manufacturing and sales of electron tubes and application products Name and location Floor space (including leased space) Principal activities and products manufactured Overseas (Thousands of square feet) Europe Canon Giessen GmbH, Giessen, Germany 348 Production and remanufacturing of office MFDs, refilling of toner cartridges, refurbishing of semiconductor lithography equipment Canon Bretagne S.A.S., Liffre, France 505 Manufacturing and recycling of toner cartridges, PCB assembly, packaging, after sales service 28 Table of Contents Name and location Floor space (including leased space) Principal activities and products manufactured Overseas (Thousands of square feet) Canon Production Printing Netherlands B.V., Venlo, the Netherlands 2,152 R&D, manufacturing, sales and distribution of large format printing systems, display graphics printing systems, mid- and high- volume office MFDs, sheet-fed printing systems, ancillary equipment, software, consumables Americas Canon Virginia, Inc., Virginia, U.S. 1,537 Production of toner cartridges, toner for MFDs and printers, molding dies, service and support for Canon sales companies (repair of cameras, remanufacturing and repair office MFDs) Asia Canon Inc., Taiwan, Taiwan 1,597 Interchangeable-lens digital cameras, network cameras, interchangeable lenses, camera accessories, precision-metal molds and others Canon Opto (Malaysia) Sdn. Bhd., Selangor, Malaysia 611 Interchangeable lenses, optical lenses and others Canon Dalian Business Machines, Inc., Dalian, China 1,721 Production and recycling of toner cartridges, production of laser printer units, design and production of precision molds and tools Canon Prachinburi (Thailand) Ltd., Prachinburi, Thailand 1,268 Office MFDs Canon Hi-Tech (Thailand) Ltd., Ayutthaya and Nakohon Ratchasima, Thailand 3,270 Inkjet printers and office MFDs Canon Zhongshan Business Machines Co., Ltd., Zhongshan, China 52 Laser printers Canon Vietnam Co., Ltd., Hanoi, Vietnam 3,370 Inkjet printers, laser printers, office MFDs, image scanners and contact image sensors Canon (Suzhou) Inc., Suzhou, China 1,528 Office MFDs and laser printers Canon Business Machines (Philippines), Inc., Batangas, Philippines 898 Laser printers Canon considers its manufacturing and other facilities to be well maintained and believes that its plant capacity is adequate for its current requirements. None of the buildings or land are subject to any major encumbrances. 29 Table of Contents Main facilities under construction for establishment/expansion Name and location Principal activities and products manufactured Domestic Canon Inc., Hiratsuka Plant, Kanagawa New production base (Manufacturing of semiconductor devices)