Canon 2014 Annual Report Download - page 40

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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 2014, a decrease of 50 basis points in the
discount rate increases the projected benefit obligation by
approximately ¥91,609 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 subse-
quent 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 actu-
al fair value of those assets could affect pension expense in
the following years, and vice versa. For 2014, a change of 50
basis points in the expected long-term rate of return on plan
assets would cause a change of approximately ¥4,218 mil-
lion in net periodic benefit cost. Canon multiplies manage-
ment’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 oth-
er comprehensive income (loss), net of tax.
CONSOLIDATED RESULTS OF OPERATIONS
Sales
The shrinking market for interchangeable-lens digital cameras
and digital compact cameras, and less-than-expected demand
during the year-end shopping season led to a major decline in
net sales in Imaging System Business Unit. However, due to
the stable demand for MFDs and laser printers, and indus-
trial equipment sales along with the positive effects of favor-
able currency exchange rates, Canon’s consolidated net
sales in 2014 totaled ¥3,727,252 million, a slight decrease of
0.1% from the previous year.
Overseas operations are significant to Canon’s operating
results and generated 80.6% of total net sales in 2014. 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 ¥106.18
against the U.S. dollar, a year-on-year depreciation of approx-
imately ¥8, and ¥140.62 against the euro, a year-on-year
depreciation of approximately ¥11. The effects of foreign
exchange rate fluctuations positively affected net sales by
Return on Sales
(%)
9
6
3
0
20142013201220112010
SUMMARY OF OPERATIONS
Millions of yen
2014 change 2013 change 2012
Net sales ¥3,727,252 -0.1% ¥3,731,380 +7.2% ¥3,479,788
Operating profit 363,489 +7.8% 337,277 +4.1% 323,856
Income before income taxes 383,239 +10.3% 347,604 +1.5% 342,557
Net income attributable to Canon Inc. 254,797 +10.5% 230,483 +2.6% 224,564
approximately ¥186,000 million in 2014. This favorable
impact consisted of approximately ¥98,200 million for the
U.S. dollar denominated sales, ¥66,800 million for the euro
denominated sales and ¥21,000 million for other foreign
currency denominated sales.
Cost of sales
Cost of sales principally reflects the cost of raw materials,
parts and labor used by Canon in the manufacture of its
products. A portion of the raw materials used by Canon is
FINANCIAL OVERVIEW