Canon 2010 Annual Report Download - page 59
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Please find page 59 of the 2010 Canon annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.CANON ANNUAL REPORT 2010 57
Canon believes that new products protected by patents will
not easily allow competitors to compete with it, and will give it
an advantage in establishing standards in the market and industry.
RECENT DEVELOPMENT
On March 11, 2011, Japan experienced a massive earthquake
and tsunami off the Pacifi c coast of Northeastern Japan. The
earthquake caused damage to inventories and buildings at
manufacturing facilities primarily in the Company’s Utsunomiya
Plant, and Fukushima Canon Inc., a manufacturing subsidiary. In
addition, certain distribution warehouses of the Company and
Canon Marketing Japan Inc., a sales subsidiary, located in
Northeastern Japan sustained damage to inventories. As a
result, production operations have been suspended at certain
plants of the Company and its manufacturing subsidiaries. The
Company has organized a special taskforce, “Earthquake
Disaster Recovery Task Force”, in order to rapidly respond to
these events and is currently making effort to resume opera-
tions immediately.
Canon cannot estimate the effect of the earthquake on its
consolidated results of operations and fi nancial condition as of
the issuance date of the consolidated fi nancial statements.
However, in the short term, the costs for recovery may occur
along with the decrease of revenues, which may adversely
affect on Canon to a certain degree.
MARKET RISK EXPOSURE
Canon is exposed to market risks, including changes in foreign
currency exchange rates, interest rates and prices of market-
able securities and investments. In order to hedge the risks of
changes in foreign currency exchange rates, Canon uses deriv-
ative fi nancial instruments.
Equity price risk
Canon holds marketable securities included in current assets,
which consist generally of highly-liquid and low-risk instru-
ments. Investments included in noncurrent assets are held as
long-term investments. Canon does not hold marketable secu-
rities and investments for trading purposes.
Maturities and fair values of such marketable securities and
investments with original maturities of more than three
months, all of which were classifi ed as available-for-sale securi-
ties, were as follows at December 31, 2010 and 2009.
Millions of yen Thousands of U.S. dollars
Available-for-sale securities Cost Fair value Cost Fair value
Due within one year ¥ 1,001 ¥ 1,001 $ 12,358 $ 12,358
Due after one year through fi ve years 952 972 11,753 12,000
Due after fi ve years through ten years 2,026 1,981 25,012 24,456
Equity securities 18,288 23,402 225,778 288,914
¥22,267 ¥27,356 $274,901 $337,728
Foreign currency exchange rate and interest
rate risk
Canon operates internationally, exposing it to the risk of changes
in foreign currency exchange rates. Derivative fi nancial instru-
ments are comprised principally of foreign currency exchange
contracts utilized by the Company and certain of its subsidiaries
to reduce the risk. Canon assesses foreign currency exchange
rate risk by continually monitoring changes in the exposures and
by evaluating hedging opportunities. Canon does not hold or
issue derivative fi nancial instruments for trading purposes.
Canon is also exposed to credit-related losses in the event of
non-performance by counterparties to derivative fi nancial instru-
ments, but it is not expected that any counterparties will fail to
meet their obligations. Most of the counterparties are interna-
tionally recognized fi nancial institutions and selected by Canon
taking into account their fi nancial condition, and contracts are
diversifi ed across a number of major fi nancial 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. dol-
lars and euros 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 specifi c portion of foreign currency exposure
resulting from forecasted intercompany sales are hedged using
foreign exchange contracts which principally mature within
three months.