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79
C
ORPORATE
S
TRUCTUREBU
S
INE
SS
S
EGMEN
T
F
INANCIAL
S
ECTIO
N
CORPORATE DAT
A
STRATEGY
20. FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset
or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an
orderly transaction between market participants at the mea-
surement date. A three-level fair value hierarchy that priori-
tizes the inputs used to measure fair value is as follows:
Level 1— Inputs are quoted prices in active markets for iden-
tical assets or liabilities.
Level 2— Inputs are quoted prices for similar assets or liabil-
ities in active markets, quoted prices for identical
or similar assets or liabilities in markets that are
not active, inputs other than quoted prices that
are observable, and inputs that are derived princi-
pally from or corroborated by observable market
data by correlation or other means.
Level 3— Inputs are derived from valuation techniques in
which one or more significant inputs or value
drivers are unobservable, which reflect the report-
ing entity’s own assumptions about the assump-
tions that market participants would use in
establishing a price.
The following methods and assumptions are used to esti-
mate the fair value in the above table.
Long-term debt
Canon’s long-term debt instruments are classified as Level
2 instruments and valued based on the present value of
future cash flows associated with each instrument discount-
ed using current market borrowing rates for similar debt
instruments of comparable maturity. The levels are more
fully described in Note 20.
Foreign exchange contracts
The fair values of foreign exchange contracts are measured
using quotes obtained from counterparties or third parties,
which are periodically validated by pricing models using
observable market inputs, such as foreign currency exchange
rates and interest rates, based on market approach.
Limitations of fair value estimates
Fair value estimates are made at a specific point in time,
based on relevant market information and information
about the financial instruments. These estimates are sub-
jective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined
with precision. Changes in assumptions could significantly
affect the estimates.
Concentrations of credit risk
At December 31, 2014 and 2013, one customer account-
ed for approximately 16% and 15% of consolidated trade
receivables, respectively. Although Canon does not expect
that the customer will fail to meet its obligations, Canon
is potentially exposed to concentrations of credit risk if
the customer failed to perform according to the terms of
the contracts.
Assets and liabilities measured at fair value on a recurring basis
The following tables present Canon’s assets and liabilities that are measured at fair value on a recurring basis consistent
with the fair value hierarchy at December 31, 2014 and 2013.
December 31
Millions of yen Level 1 Level 2 Level 3 Total
2014: Assets:
Cash and cash equivalents ¥ — ¥ 139,240 ¥ — ¥ 139,240
Available-for-sale (noncurrent):
Government bonds 325 — — 325
Corporate bonds — 162 474 636
Fund trusts 12 72 — 84
Equity securities 40,653 — — 40,653
Derivatives — 265 — 265
Total assets ¥ 40,990 ¥ 139,739 ¥ 474 ¥ 181,203
Liabilities:
Derivatives ¥ — ¥ 11,167 ¥ — ¥ 11,167
Total liabilities ¥ — ¥ 11,167 ¥ — ¥ 11,167