Canon 2007 Annual Report Download - page 85

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Years ended December 31 Japanese plans Foreign plans
2007 2006 2005 2007 2006 2005
Discount rate 2.5% 2.5% 2.5% 4.5% 4.8% 4.8%
Assumed rate of increase
in future compensation levels 2.9% 2.9% 3.1% 2.9% 2.6% 2.7%
Expected long-term rate of return on plan assets 3.9% 4.5% 4.5% 6.0% 6.4% 6.6%
Weighted-average assumptions used to determine net
periodic benefit cost are as follows:
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, 2007 and 2006 and target asset allocation by
asset category are as follows:
December 31 Japanese plans Foreign plans
Target Target
2007 2006 allocation 2007 2006 allocation
Asset category:
Equity securities 33.6% 43.0% 35.4% 52.4% 57.9% 52.3%
Debt securities 45.2 37.5 45.2 33.8 25.9 33.4
Cash 1.1 0.5 0.2 ———
Life insurance company general accounts 19.5 18.6 18.7 ———
Other 0.6 0.4 0.5 13.8 16.2 14.3
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
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
¥1,257million ($11,026 thousand) and ¥1,797 million at
December 31, 2007 and 2006, respectively.
Contributions
Canon expects to contribute ¥13,699 million ($120,167
thousand) to its Japanese defined benefit pension plans and
¥4,409 million ($38,675 thousand) to its foreign defined
benefit pension plans for the year ending December 31, 2008.
Estimated future benefit payments
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid:
Year ending December 31: Japanese plans Foreign plans
Thousands of Thousands of
Millions of yen U.S. dollars Millions of yen U.S. dollars
2008 ¥ 10,949 $ 96,044 ¥ 2,163 $ 18,974
2009 11,981 105,096 2,258 19,807
2010 13,209 115,868 2,376 20,842
2011 14,901 130,711 2,570 22,544
2012 16,119 141,395 2,678 23,491
2013—2017 100,323 880,026 16,852 147,825