Canon 2014 Annual Report Download - page 47

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45
C
ORPORATE
S
TRUCTUREBU
S
INE
SS
S
EGMEN
T
F
INANCIAL
S
ECTIO
N
CORPORATE DAT
A
STRATEGY
Canon’s consolidated R&D expenses were ¥308,979 mil-
lion in 2014, ¥306,324 million in 2013 and ¥296,464 mil-
lion in 2012. The ratios of R&D expenses to the consolidated
total net sales for 2014, 2013 and 2012 were 8.3%, 8.2% and
8.5%, respectively.
Canon believes that new products protected by patents
will not easily allow competitors to compete with them, and
will give them an advantage in establishing standards in the
market and industry.
Canon obtained the third greatest number of private sec-
tor patents in 2014, according to the United States patent
annual list, released by IFI CLAIMS® Patent Services.
MARKET RISK EXPOSURES
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
instruments. Investments included in noncurrent assets are
held as long-term investments. Canon does not hold mar-
ketable securities and investments for trading purposes.
Millions of yen
Available-for-sale securities Cost Fair value
Debt securities
Due after five years ¥ 843 ¥ 961
Fund trusts 84 84
Equity securities 20,905 40,653
¥21,832 ¥41,698
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 securities, were as follows at December 31, 2014.
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 curren-
cy exchange contracts utilized by the Company and certain of
its subsidiaries to reduce the risk. Canon assesses foreign cur-
rency exchange rate risk by continually monitoring chang-
es in the 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. Most of
the counterparties are internationally recognized financial
institutions and selected by Canon taking 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 intercompa-
ny sales are hedged using foreign exchange contracts which
principally mature within three months.
Millions of yen U.S.$ Euro Others Total
Forwards to sell foreign currencies:
Contract amounts ¥193,195 ¥141,815 ¥23,852 ¥358,862
Estimated fair value (8,300) (2,457) (423) (11,180)
Forwards to buy foreign currencies:
Contract amounts ¥ 12,018 ¥ 9,347 ¥ — ¥ 21,365
Estimated fair value 316 (38) — 278
The following table provides information about Canon’s major derivative financial instruments related to foreign cur-
rency exchange transactions existing at December 31, 2014. All of the foreign exchange contracts described in the following
table have a contractual maturity date in 2015.