Canon 2004 Annual Report Download - page 49

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currency exchange transactions existing at December 31,
2004. All of the foreign exchange contracts described in the
following table have a contractual maturity date in 2005.
Canon’s exposure to the risk of changes in interest rates
relates primarily to its debt obligations. The variable-rate debt
obligations expose Canon to variability in their cash flows due
to change in interest rates. To manage the variability in cash
flows caused by interest rate changes, Canon enters into
interest rate swaps when it is determined to be appropriate
based on market conditions. The interest rate swaps change
variable-rate debt obligations to the fixed-rate debt
obligations by primarily entering into pay-fixed, receive-
variable interest rate swaps.
Derivative financial instruments designated as fair value
hedges principally relate to interest rate swaps associated with
fixed-rate debt obligations. Changes in fair values of the
hedged debt obligations and derivative instruments
designated as fair value hedges of these debt obligations are
recognized in other income (deductions). There is no hedging
ineffectiveness or net gains or losses excluded from the
assessment of hedge effectiveness for fiscal 2004, 2003 and
2002 as the critical terms of the interest rate swaps match the
terms of the hedged debt obligations.
Changes in the fair value of derivative financial
instruments designated as cash flow hedges, including foreign
exchange contracts associated with forecasted intercompany
sales and interest rate swaps associated with variable rate
debt obligations, are reported in accumulated other
comprehensive income (loss). These amounts are subsequently
reclassified into earnings through other income (deductions)
in the same period as the hedged items affect earnings.
Substantially all amounts recorded in accumulated other
comprehensive income (loss) at year-end is expected to be
recognized in earnings over the next twelve months. Canon
excludes the time value component from the assessment of
hedge effectiveness.
The amounts of the hedging ineffectiveness are not
material for the years ended December 31, 2004, 2003 and
2002. The amounts of net gains or losses excluded from the
assessment of hedge effectiveness which are recorded in
other income (deductions) are net losses of ¥2,096 million
($20 million), ¥490 million and ¥668 million for the years
ended December 31, 2004, 2003 and 2002, respectively.
Canon has entered into certain foreign currency exchange
contracts to manage its foreign currency exposures. These
foreign currency exchange contracts have not been
designated as hedges. Accordingly, the changes in fair values
of the contracts are recorded in earnings immediately.
LOOKING FORWARD
For Canon, 2005 marks the fifth and the final year of Phase II
of its Excellent Global Corporation Plan (2001-2005). Canon
will continue to move forward with several initiatives designed
to ensure that it meets its goals, including enhancements of
efficiencies in all areas of Canon’s operation, from R&D and
production processes to head-office administrative operations,
by simultaneously targeting improved productivity and the
elimination of waste. In the area of development, Canon will
target the further shortening of product development periods
and improvements in design quality. Canon will also continue
to strive to substantially reduce product development costs by
implementing digital trial production procedures that make it
unnecessary to create prototypes. As for production, Canon
will focus its energies on the in-house production of key
components and development of innovative high-efficiency
factory automation equipment to realize even greater cost
LONG-TERM DEBT (including due within one year) (Millions of yen)
Weighted average Expected maturity date Estimated
interest rates Total 2005 2006 2007 2008 2009 Thereafter Fair Value
Japanese yen notes 2.46% ¥25,200 5,200 — 10,000 10,000 — — 26,559
Japanese yen convertible
debentures 1.28% 1,796 309 — — 1,487 — — 6,634
Other long-term debt 2.38% 11,534 4,370 5,046 1,401 587 105 25 11,427
Total ¥38,530 9,879 5,046 11,401 12,074 105 25 44,620
LONG-TERM DEBT (including due within one year) (Thousands of U.S. dollars)
Weighted average Expected maturity date Estimated
interest rates Total 2005 2006 2007 2008 2009 Thereafter Fair Value
Japanese yen notes 2.46% $242,308 50,000 — 96,154 96,154 — — 255,375
Japanese yen convertible
debentures 1.28% 17,269 2,971 — — 14,298 — — 63,788
Other long-term debt 2.38% 110,903 42,019 48,520 13,471 5,643 1,010 240 109,875
Total $370,480 94,990 48,520 109,625 116,095 1,010 240 429,038
Note: All long-term debt is fixed rate except loans, principally from banks which include both fixed and floating rate debt.