Canon 2005 Annual Report Download - page 52

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Available-for-sale securities Millions of yen Thousands of U.S. dollars
Cost Fair Value Cost Fair Value
Due within one year ¥ 71 71 $ 602 602
Due after one year through five years 1,811 3,243 15,347 27,483
Due after five years 3,352 3,376 28,407 28,610
Equity securities 11,474 26,550 97,237 225,000
¥16,708 33,240 $141,593 281,695
Held-to-maturity securities Millions of yen Thousands of U.S. dollars
Cost Fair Value Cost Fair Value
Due after one year through five years ¥20,961 20,961 $177,636 177,636
MARKET RISK EXPOSURE
Canon is exposed to market risks, including changes in foreign
currency exchange rates, interest rates and prices of mar-
ketable securities and investments. In order to hedge the risks
of changes in foreign currency exchange rates and interest
rates, Canon uses derivative financial instruments.
Equity Price Risk
Canon holds marketable securities included in current assets as
short-term investments, which consist generally of highly-liquid
and low-risk instruments. Investments included in noncurrent
assets are held as long-term investments. Canon does not hold
marketable securities and investments for trading purposes.
Maturities and fair values of such marketable securities and
investments were as follows at December 31, 2005.
Foreign Currency Exchange Rate and Interest
Rate Risk
Canon operates internationally, exposing it to the risk of
changes in foreign currency exchange rates and interest rates.
Derivative financial instruments are comprised principally of for-
eign currency exchange contracts and interest rate swaps uti-
lized by the Company and certain of its subsidiaries to reduce
these risks. Canon assesses foreign currency exchange rate risk
and interest rate risk by continually monitoring changes in
these exposures and by evaluating hedging opportunities.
Canon does not hold or issue derivative financial instruments
for trading purposes. Canon is also exposed to credit-related
losses in the event of non-performance by counterparties to
derivative financial instruments, but it is not expected that any
counterparties will fail to meet their obligations, because most
of the counterparties are internationally recognized financial
institutions and contracts are diversified across a number of
major financial institutions.
Canon’s international operations expose Canon to the risk
of changes in foreign currency exchange rates. Canon uses for-
eign exchange contracts to manage certain foreign currency
exchange exposures principally from the exchange of U.S.
dollar and euro into Japanese yen. These contracts are primarily
used to hedge the foreign currency exposure of forecasted
intercompany sales and intercompany trade receivables which
are denominated in foreign currencies. In accordance with
Canon’s policy, a specific portion of foreign currency exposure
resulting from forecasted intercompany sales are hedged using
foreign exchange contracts which principally mature within
three months.
The following table provides information about Canon’s
major derivative financial instruments related to foreign
currency exchange transactions existing at December 31, 2005.
All of the foreign exchange contracts described in the following
table have a contractual maturity date in 2006.
Thousands of U.S. dollars
Forwards to sell foreign currencies: U.S.$ euro Others Total
Contract amounts $3,059,932 2,128,771 278,992 5,467,695
Estimated fair value (40,924) (12,364) (2,983) (56,271)
Forwards to buy foreign currencies:
Contract amounts $ 254,517 50,627 88,280 393,424
Estimated fair value 144 (2,508) (7,568) (9,932)
Millions of yen
Forwards to sell foreign currencies: U.S.$ euro Others Total
Contract amounts ¥361,072 251,195 32,921 645,188
Estimated fair value (4,829) (1,459) (352) (6,640)
Forwards to buy foreign currencies:
Contract amounts ¥ 30,033 5,974 10,417 46,424
Estimated fair value 17 (296) (893) (1,172)