Canon 2012 Annual Report Download - page 48

Strategy Business Units Management System FINANCIAL SECTION
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All of Canon’s long-term debt is fixed rate debt. Canon
expects that fair value changes and cash flows resulting
from reasonable near-term changes in interest rates will be
immaterial. Accordingly, Canon believes interest rate risk is
insignificant. See also Note 10 of the Notes to Consolidated
Financial Statements.
Changes in the fair value of derivative financial instru-
ments designated as cash flow hedges, including foreign
exchange contracts associated with forecasted intercompany
sales, 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
such amounts recorded in accumulated other comprehen-
sive income (loss) at year-end are expected to be recognized
in earnings over the next twelve months. Canon excludes the
time value component from the assessment of hedge effec-
tiveness. Changes in the fair value of a foreign exchange
contract for the period between the date that the forecasted
intercompany sales occur and its maturity date are recog-
nized in earnings and not considered hedge ineffectiveness.
The amount of the hedging ineffectiveness was not mate-
rial for the years ended December 31, 2012, 2011 and 2010.
The amounts of net losses excluded from the assessment
of hedge effectiveness (time value component) which was
recorded in other income (deductions) was ¥221 million
(U.S.$3 million), ¥457 million and ¥302 million for the years
ended December 31, 2012, 2011 and 2010, respectively.
Canon has entered into certain foreign currency exchange
contracts to manage its foreign currency exposures. These for-
eign currency exchange contracts have not been designated
as hedges. Accordingly, the changes in fair values of these
contracts are recorded in earnings immediately.
LOOKING FORWARD
Looking at prospects for the global economy, Canon expects
the U.S. economy to realize an accelerated recovery and
emerging economies such as China to maintain solid growth.
Canon believes, however, that European economies are likely
to remain sluggish due to the debt crisis. The global economy
as a whole is likely, Canon thinks, to show moderate growth,
while the Japanese economy will likely head into solid
recovery driven by the economic reconstruction policy and
weakening of the yen against other currencies.
Fiscal 2013 represents the third year of Phase IV (2011–
2015) of the Excellent Global Corporation Plan, a year in
which Canon will implement various measures and in line
with a basic policy Canon has established to implement sharp
reforms and achieve sound business growth in the face of the
current turbulent business environment.
In order to achieve its targets, Canon has set and will
actively pursue the following five priority goals.
• Reinforcing Business by Creating Outstanding Hit
Products
Canon aims to develop next-generation products and cre-
ate business models that take into account the dramatic
changes taking place in the market such as the popular-
ization of smartphones and cloud computing. Canon will
further reinforce business profitability, realizing timely
launches of new products that are of sound development
quality leveraging the technology of prototype-less devel-
opment, and filtering down the selection of products
through a process of selection and concentration.
• Securely Launching New Businesses and Achieving
Sound Expansion
Canon plans to work to fundamentally strengthen its
business, targeting the rapidly growing market for
network camera systems. Canon plans to also work to
further strengthen its “CINEMA EOS SYSTEM” and boost
the profitability of its MR System “MREAL.” Additionally,
Canon will take full advantage of M&A opportunities to
further broaden the range of its business.
• Thoroughly Strengthening Sales in Accordance with
Respective Market Characteristics
In the office products domain, Canon plans to lever-
age its integration with sales subsidiaries of Océ N.V.
to thoroughly strengthen direct sales and the solution
and service business, while in the consumer products
domain, Canon plans to strengthen sales in emerging
markets and launch products suited to the country’s or
region’s market characteristics in order to achieve sales
expansion that is higher than economic growth.
• Relentlessly Pursuing Cost Reductions and Accelerating
Optimization of Global Production
Canon plans to accelerate the application of automated
and robot-based production. Canon plans to also expand
its application of in-house production, which has focused