Canon 2004 Annual Report Download - page 82

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CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Legal proceedings
In February 2003, a lawsuit was filed by St. Clair Intellectual
Property Consultants, Inc. (“St. Clair”) against the Company
and one of its subsidiaries in the United States District Court of
Delaware, which accused the Company of infringement of
patents related to certain technology. In connection with this
case, in October 2004, a jury preliminarily found damages
against the Company of approximately ¥3,600 million
($34,615 thousand) based on a percentage of certain product
sales in the United States through 2003. Subsequent to this
jury finding, St. Clair also made a motion to the court for
damages relating to certain 2004 sales, using the same royalty
rate awarded by the jury which could result in additional
damages. There are additional defenses that are yet to be
litigated in a follow-up trial solely to the judge; thus, a final
decision by the court, as to both infringement and the total
amount of damages, has not yet been reached.
In November 2003, a law suit was filed by a former
employee against the Company at Tokyo District Court in
Japan. The lawsuit alleges that the former employee is entitled
to ¥45,872 million ($441,077 thousand) as compensation for
an invention related to certain technology used by the
Company, and has sued for a partial payment of ¥1,000
million ($9,615 thousand) and interest thereon. The case is still
pending and its final outcome is not yet determinable.
Canon is also involved in various other claims and legal
actions arising in the ordinary course of business.
In the opinion of management, the ultimate disposition of
the above mentioned matters will not have a material adverse
effect on Canon’s consolidated financial position, results of
operations, or cash flows.
December 31 Millions of yen Thousand of U.S. dollars
2004 2003 2004
Carrying Estimated Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value Amount Fair Value
Long-term debt, including current installments ¥ (38,530) (44,620) (95,455) (123,700) $(370,480) (429,038)
Derivatives:
Foreign exchange contracts:
Assets 4,875 4,875 3,760 3,760 46,875 46,875
Liabilities (11,020) (11,020) (7,697) (7,697) (105,962) (105,962)
Interest rate swaps:
Liabilities —— (55) (55) ——
The following methods and assumptions are used to
estimate the fair value in the above table.
Long-term debt
The fair values of Canon’s long-term debt instruments are
based on the quoted price in the most active market or the
present value of future cash flows associated with each
instrument discounted using Canon’s current borrowing rate
for similar debt instruments of comparable maturity.
Derivative financial instruments
The fair values of derivative financial instruments, consisting
principally of foreign exchange contracts and interest rate
swaps, all of which are used for purposes other than trading,
are estimated by obtaining quotes from brokers.
20) Disclosures about the Fair Value of Financial
Instruments and Concentrations of Credit Risk
Fair value of financial instruments
The estimated fair values of Canon’s financial instruments at
December 31, 2004 and 2003 are set forth below. The
following summary excludes cash and cash equivalents, trade
receivables, finance receivables, noncurrent receivables, short-
term loans, trade payables, accrued expenses for which fair
value approximate their carrying amounts. The summary also
excludes marketable securities and investments which are
disclosed in Note 4.