Canon 2015 Annual Report Download - page 47

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CANON ANNUAL REPORT 2015 45
STRATEGY BUSINESS SEGMENT CORPORATE STRUCTURE FINANCIAL SECTION CORPORATE DATA
MARKET RISK EXPOSURES
Canon is exposed to market risks, including changes in foreign
currency exchange rates, interest rates and prices of market-
able securities and investments. In order to hedge the risks of
changes in foreign currency exchange rates, Canon uses deriv-
ative 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.
Millions of yen
Available-for-sale securities Cost Fair value
Debt securities
Due after five years ¥ 304 ¥ 488
Fund trusts 63 64
Equity securities 20,461 42,849
¥20,828 ¥43,401
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 cur-
rency exchange rate risk by continually monitoring changes
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
Millions of yen U.S.$ Euro Others Total
Forwards to sell foreign currencies:
Contract amounts ¥120,227 ¥90,865 ¥16,961 ¥228,053
Estimated fair value (41) 226 78 263
Forwards to buy foreign currencies:
Contract amounts ¥ 27,553 ¥ 9,623 ¥ 364 ¥ 37,540
Estimated fair value 318 265 15 598
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, 2015.
institutions and selected by Canon taking into account their
financial condition, and contracts are diversified across a num-
ber 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 currency
exchange exposures principally from the exchange of U.S. dol-
lars and euros into Japanese yen. These contracts are primar-
ily 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, 2015. All of the foreign exchange contracts described in the following table
have a contractual maturity date in 2016.
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 imma-
terial. Accordingly, Canon believes interest rate risk is insignif-
icant. See also Note 9 of the Notes to Consolidated Financial
Statements.
Changes in the fair value of derivative financial instruments
designated as cash flow hedges, including foreign currency
exchange contracts associated with forecasted intercom-
pany sales, are reported in accumulated other comprehensive