Canon 2004 Annual Report Download - page 69

67
Year ended December 31 Thousands of
Millions of yen U.S. dollars
2004 2003 2002 2004
Service cost — benefits earned during the year ¥26,571 29,024 39,206 $255,490
Interest cost on projected benefit obligation 19,108 20,806 19,270 183,731
Expected return on plan assets (17,054) (13,959) (14,523) (163,981)
Amortization of unrecognized net obligation at transition 344 344 344 3,308
Amortization of prior service cost (6,814) (5,515) (3,246) (65,519)
Recognized actuarial loss 12,505 15,807 14,743 120,241
Settlement loss resulting from plan termination 2,784 —— 26,769
Settlement loss resulting from transfer of
substitutional portion of EPFs to the government 69,651 ——669,721
¥107,095 46,507 55,794 $1,029,760
(12) Employee Retirement and Severance
Benefits
The Company and certain of its subsidiaries have contributory
and noncontributory defined benefit plans covering
substantially all employees after one year of service. Other
subsidiaries sponsor unfunded retirement and severance plans.
Benefits payable under the plans are based on employee
earnings and years of service.
The contributory plans in Japan mainly represent the
Employees’ Pension Fund plans (“EPFs”), composed of the
substitutional portions based on the pay-related part of the
old age pension benefits prescribed by the Welfare Pension
Insurance Law and the corporate portions based on
contributory defined benefit pension arrangements established
at the discretion of the Company and its subsidiaries. The
substitutional portions of the EPFs represent welfare pension
plans carried on behalf of the Japanese government. These
contributory and noncontributory plans are funded in
conformity with the funding requirements of applicable
Japanese governmental regulations.
In January 2003, the Emerging Issues Task Force reached a
final consensus on Issue No. 03-2 (“EITF 03-2”), “Accounting
for the Transfer to the Japanese Government of the
Substitutional Portion of Employee Pension Fund Liabilities,”
which addresses accounting for a transfer to the Japanese
government of a substitutional portion of an EPF. During the
year ended December 31, 2003, the Company and certain of
its domestic subsidiaries received approval from the
government for an exemption from the obligation to pay
benefits for future employee service related to the
substitutional portion. During the year ended December 31,
2004, the Company and certain of its domestic subsidiaries
received approval to separate the remaining substitutional
portion related to past service by their employees. During the
year ended December 31, 2004, the Company and certain of
its domestic subsidiaries also completed the transfer of the
substitutional portion of the benefit obligation and the related
government-specified portion of the plan assets which were
computed by the government, and were relieved of all related
obligations. Canon has accounted for the entire process at the
completion of the transfer to the government of the
substitutional portion of the benefit obligation and the related
plan assets as a single settlement transaction in accordance
with EITF 03-2. As a result, Canon recognized a settlement
loss of ¥69,651 million ($669,721 thousand) for the year
ended December 31, 2004, which is determined based on the
proportion of the projected benefit obligation settled to the
total projected benefit obligation immediately prior to the
separation. Canon also recognized a subsidy from the
government of ¥86,792 million ($834,538 thousand), which is
calculated as the difference between the obligation settled
and the assets transferred to the government. The net gain of
¥17,141 million ($164,817 thousand) is included in selling,
general and administrative expenses for the year ended
December 31, 2004.
Canon uses a measurement date of October 1 for the
majority of its plans.
Net periodic benefit cost for Canon’s employee retirement
and severance defined benefit plans for the years ended
December 31, 2004, 2003 and 2002 consisted of the
following components: