Canon 2014 Annual Report Download - page 77

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75
C
ORPORATE
S
TRUCTUREBU
S
INE
SS
S
EGMEN
T
F
INANCIAL
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ECTIO
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CORPORATE DAT
A
STRATEGY
16. NET INCOME ATTRIBUTABLE TO CANON INC. STOCKHOLDERS PER SHARE
A reconciliation of the numerators and denominators of basic and diluted net income attributable to Canon Inc. stockhold-
ers per share computations is as follows:
The computation of diluted net income attributable to Canon Inc. stockholders per share for the years ended December
31, 2014, 2013 and 2012 excludes certain outstanding stock options because the effect would be anti-dilutive.
Years ended December 31 Millions of yen
2014 2013 2012
Net income attributable to Canon Inc. ¥ 254,797 ¥ 230,483 ¥ 224,564
Number of shares
Average common shares outstanding 1,112,509,931 1,147,933,835 1,173,647,835
Effect of dilutive securities:
Stock options 4,393 8,466 20,574
Diluted common shares outstanding 1,112,514,324 1,147,942,301 1,173,668,409
Yen
Net income attributable to Canon Inc. stockholders per share:
Basic ¥ 229.03 ¥ 200.78 ¥ 191.34
Diluted 229.03 200.78 191.34
17. DERIVATIVES AND HEDGING ACTIVITIES
Risk management policy
Canon operates internationally, exposing it to the risk of
changes in foreign currency exchange rates. Derivative
financial instruments are comprised principally of foreign
exchange contracts utilized by the Company and certain
of its subsidiaries to reduce the risk. Canon assesses for-
eign currency exchange rate risk by continually monitoring
changes in the exposures and by evaluating hedging oppor-
tunities. 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 tak-
ing into account their financial condition, and contracts are
diversified across a number of major financial institutions.
Foreign currency exchange rate risk management
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 expo-
sure of forecasted intercompany sales and intercompany
trade receivables that are denominated in foreign curren-
cies. 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.
Cash flow hedge
Changes in the fair value of derivative financial instru-
ments designated as cash flow hedges, including foreign
exchange contracts associated with forecasted intercom-
pany sales, are reported in accumulated other compre-
hensive income (loss). These amounts are subsequently
reclassified into earnings through other income (deduc-
tions) in the same period as the hedged items affect earn-
ings. Substantially all amounts recorded in accumulated
other comprehensive 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 assess-
ment of hedge effectiveness. Changes in the fair value of a
foreign exchange contract for the period between the date
that the forecasted intercompany sales occur and its matu-