Canon 2011 Annual Report Download - page 51

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Strategy Business Units Management System FINANCIAL SECTION
49
!37 !101
FINANCIAL SECTION
MARKET RISK EXPOSURE
Canon is exposed to market risks, including changes in for-
eign currency exchange rates, interest rates and prices of
marketable securities and investments. In order to hedge the
risks of changes in foreign currency exchange rates, Canon
uses derivative financial 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 classified as available-for-sale secu-
rities, were as follows at December 31, 2011 and 2010.
Millions of yen Thousands of U.S. dollars
Available-for-sale securities Cost Fair value Cost Fair value
Due within one year ¥20 ¥20 $ 256 $ 256
Due after one year through five years 962 926 12,333 11,872
Due after five years through ten years 1,646 1,608 21,103 20,615
Equity securities 15,911 17,724 203,987 227,231
¥18,539 ¥20,278 $237,679 $259,974
Foreign currency exchange rate and
interest rate risk
Canon operates internationally, exposing it to the risk of
changes in foreign currency exchange rates. Derivative finan-
cial instruments 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 monitor-
ing changes in the exposures and by evaluating hedging
opportunities. Canon does not hold or issue derivative finan-
cial 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. Most of the counterparties are internationally
recognized financial institutions and selected by Canon tak-
ing into account their financial condition, 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
foreign exchange contracts to manage certain foreign cur-
rency exchange exposures principally from the exchange of
U.S. dollars 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 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,
2011. All of the foreign exchange contracts described in the
following table have a contractual maturity date in 2012.
Millions of yen U.S.$ Euro Others Total
Forwards to sell foreign currencies:
Contract amounts ¥217,566 ¥148,478 ¥25,411 ¥391,455
Estimated fair value (1,033) 4,796 (80) 3,683
Forwards to buy foreign currencies:
Contract amounts ¥33,081 ¥41,935 ¥ — ¥ 75,016
Estimated fair value 175 (1,750) —(1,575)
Thousands of U.S. dollars U.S.$ Euro Others Total
Forwards to sell foreign currencies:
Contract amounts $2,789,308 $1,903,564 $325,782 $5,018,654
Estimated fair value (13,244) 61,487 (1,025) 47,218
Forwards to buy foreign currencies:
Contract amounts $ 424,116 $ 537,628 $ '$ 961,744
Estimated fair value 2,244 (22,436) '(20,192)