Canon 2006 Annual Report Download - page 80

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78
Canon’s investment policies are designed to ensure adequate
plan assets are available to provide future payments of pension
benefits to eligible participants. Taking into account the expected
long-term rate of return on plan assets, Canon formulates a
“model” portfolio comprised of the optimal combination of
equity securities and debt securities. Plan assets are invested in
individual equity and debt securities using the guidelines of the
“model” portfolio in order to produce a total return that will
match the expected return on a mid-term to long-term basis.
Canon evaluates the gap between expected return and actual
return of invested plan assets on an annual basis to determine
if such differences necessitate a revision in the formulation of
the “model” portfolio. Canon revises the “model” portfolio
when and to the extent considered necessary to achieve the
expected long-term rate of return on plan assets.
The plan’s equity securities include common stock of the
Company and certain of its subsidiaries in the amounts of
¥1,797 million ($15,101 thousand) and ¥1,311 million at
December 31, 2006 and 2005, respectively.
Contributions
Canon expects to contribute ¥17,369 million ($145,958 thou-
sand) to its defined benefit plans for the year ending December
31, 2007.
Estimated future benefit payments
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid:
Year ending December 31 Thousands of
Millions of yen U.S. dollars
2007 ¥10,709 $ 89,992
2008 12,514 105,160
2009 13,914 116,924
2010 15,216 127,866
2011 16,800 141,176
2012—2016 109,869 923,269
Assumptions
Weighted-average assumptions used to determine benefit
obligations are as follows:
December 31 2006 2005
Discount rate 2.8% 2.7%
Assumed rate of increase in
future compensation levels 3.4% 3.3%
Weighted-average assumptions used to determine net
periodic benefit cost are as follows:
Year ended December 31 2006 2005 2004
Discount rate 2.7% 2.7% 2.7%
Assumed rate of increase in
future compensation levels 3.3% 3.0% 2.0%
Expected long-term rate of
return on plan assets 4.8% 4.6% 3.6%
Canon determines the expected long-term rate of return
based on the expected long-term return of the various asset
categories in which it invests. Canon considers the current
expectations for future returns and the actual historical returns
of each plan asset category.
Plan assets
The weighted-average asset allocations of Canon’s benefit plans
at December 31, 2006 and 2005 and target asset allocation by
asset category are as follows:
December 31 Target
2006 2005 Allocation
Asset category:
Equity securities 40.5% 50.8% 37.5%
Debt securities 40.5% 34.6% 44.5%
Cash 0.4% 0.7% 0.1%
Life insurance company
general accounts 15.9% 13.5% 15.7%
Other 2.7% 0.4% 2.2%
100.0% 100.0% 100.0%
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
CANON INC. AND SUBSIDIARIES