Canon 2013 Annual Report Download - page 40

Strategy FINANCIAL SECTION
38 Corporate DataBusiness Segment Corporate Structure
benefit obligations of 1.6% for Japanese plans and 3.8% for
foreign plans and a weighted-average expected long-term
rate of return on plan assets of 3.1% for Japanese plans and
5.2% for foreign plans. In estimating the discount rate,
Canon uses available information about rates of return on
high-quality fixed-income government and corporate bonds
currently available and expected to be available during
the period to the maturity of the pension benefits. Canon
establishes the expected long-term rate of return on plan
assets based on management’s expectations of the long-
term return of the various plan asset categories in which it
invests. Management develops expectations with respect to
each plan asset category based on actual historical returns
and its current expectations for future returns.
Decreases in discount rates lead to increases in actuarial
pension benefit obligations which, in turn, could lead to an
increase in service cost and amortization cost through amor-
tization of actuarial gain or loss, a decrease in interest cost,
and vice versa. For 2013, a decrease of 50 basis points in the
discount rate increases the projected benefit obligation by
approximately ¥97,589 million (U.S.$929 million). The net
effect of changes in the discount rate, as well as the net effect
of other changes in actuarial assumptions and experience, is
deferred until subsequent periods.
Decreases in expected returns on plan assets may increase
net periodic benefit cost by decreasing the expected return
amounts, while differences between expected value and
actual fair value of those assets could affect pension expense
in the following years, and vice versa. For 2013, a change of
50 basis points in the expected long-term rate of return on
plan assets would cause a change of approximately ¥4,713
million (U.S.$45 million) in net periodic benefit cost. Canon
multiplies management’s expected long-term rate of return
on plan assets by the value of its plan assets to arrive at the
expected return on plan assets that is included in pension
expense. Canon defers recognition of the difference between
this expected return on plan assets and the actual return on
plan assets. The net deferral affects future pension expense.
Canon recognizes the funded status (i.e., the difference
between the fair value of plan assets and the projected bene-
fit obligations) of its pension plans in its consolidated balance
sheets, with a corresponding adjustment to accumulated
other comprehensive income (loss), net of tax.
CONSOLIDATED RESULTS OF OPERATIONS
Sales
Canon’s consolidated net sales in 2013 totaled ¥3,731,380 mil-
lion (U.S.$35,537 million), representing a 7.2% increase from
the previous year. This was realized through steady demands
for MFDs and laser printers, along with an increase in sales of
inkjet printers as well as the positive effects of favorable cur-
rency exchange rates, despite the decline in demand for digi-
tal compact cameras and industrial equipment.
Overseas operations are significant to Canon’s operating
results and generated 80.8% of total net sales in 2013. Such
sales are denominated in the applicable local currency and
are subject to fluctuations in the value of the yen relative to
those currencies. Despite efforts to reduce the impact of cur-
rency fluctuations on operating results, including localiza-
tion of manufacturing in some regions along with procuring
parts and materials from overseas suppliers, Canon believes
such fluctuations have had and will continue to have a signif-
icant effect on its results of operations.
The average value of the yen during the year was ¥97.84
against the U.S. dollar, a year-on-year depreciation of approx-
imately ¥18, and ¥130.01 against the euro, a year-on-year
depreciation of approximately ¥27. The effects of foreign
exchange rate fluctuations positively affected net sales by
Return on Sales
(%)
9
6
3
0
20132012201120102009
7.0
6.5 6.2
6.7
4.1
SUMMARY OF OPERATIONS
Millions of yen
Thousands of
U.S. dollars
2013 change 2012 change 2011 2013
Net sales ¥3,731,380 +7.2% ¥3,479,788 -2.2% ¥3,557,433 $35,536,952
Operating profit 337,277 +4.1% 323,856 -14.3% 378,071 3,212,162
Income before income taxes 347,604 +1.5% 342,557 -8.5% 374,524 3,310,514
Net income attributable to Canon Inc. 230,483 +2.6% 224,564 -9.7% 248,630 2,195,076
approximately ¥514,000 million (U.S.$4,895 million) in 2013.
This favorable impact consisted of approximately ¥257,000
million (U.S.$2,448 million) for the U.S. dollar denominated
sales, ¥193,600 million (U.S.$1,844 million) for the euro
denominated sales and ¥63,400 million (U.S.$604 million) for
other foreign currency denominated sales.