| Employee Retirement and Severance Benefits | 11. Employee Retirement and
Severance Benefits The Company and certain of
its subsidiaries have contributory and noncontributory defined
benefit pension plans covering substantially all of their
employees. Benefits payable under the plans are based on employee
earnings and years of service. The Company and certain of its
subsidiaries also have defined contribution pension plans covering
substantially all of their employees. Effective January 1,
2014, defined benefit pension plans of certain subsidiaries in the
Netherlands were terminated, and the related plan assets and
obligations were transferred to a multiemployer pension plan for
the industry in which these subsidiaries operate. As a result, the
Company recorded a gain on curtailments and settlements of
¥9,370 million in selling, general and administrative
expenses in the consolidated statement of income for the year ended
December 31, 2014. The following tables
include the provisional financial impact related to the acquisition
of TMSC, which was acquired during the year ended December 31,
2016. TMSC participates in Toshiba Corporate Pension Fund and the
establishment of the new pension plan is currently in progress. The
Company calculated the projected benefit obligations based on the
current benefit level of Toshiba Corporate Pension Fund and
included proportional share of the plan assets of TMSC in the
following tables. These obligations and plan assets are expected to
be reasonable estimates of the impact of creating the new
plan.
Obligations and
funded status Reconciliations of
beginning and ending balances of the projected benefit obligations
and the fair value of the plan assets are as follows:
Japanese plans Foreign plans
December 31 December 31
2016 2015 2016 2015
(Millions of yen) (Millions of yen)
Change in benefit
obligations:
Projected benefit
obligations at beginning of year 781,350 760,331 349,680 364,662
Service cost 29,367 30,009 6,816 7,760
Interest cost 8,238 8,008 8,792 10,572
Plan participants’
contributions — — 1,594 1,830
Actuarial (gain)
loss 45,778 7,481 55,629 (5,534 )
Benefits paid (25,032 ) (24,479 ) (6,268 ) (6,795 )
Acquisition 71,040 — 21,285 —
Plan amendments (4,734 ) — — (2,655 )
Foreign currency exchange
rate changes — — (45,442 ) (20,160 )
Projected benefit
obligations at end of year 906,007 781,350 392,086 349,680
Change in plan
assets:
Fair value of plan assets
at beginning of year 626,575 622,121 217,870 221,421
Actual return on plan
assets 12,145 17,541 18,276 21
Employer
contributions 7,304 8,701 7,271 10,864
Plan participants’
contributions — — 1,594 1,830
Benefits paid (21,782 ) (21,788 ) (6,268 ) (6,795 )
Acquisition 43,194 — 14,972 —
Foreign currency exchange
rate changes — — (28,776 ) (9,471 )
Fair value of plan assets
at end of year 667,436 626,575 224,939 217,870
Funded status at end of
year (238,571 ) (154,775 ) (167,147 ) (131,810 )
Amounts recognized in the
consolidated balance sheets at December 31, 2016 and 2015 are
as follows:
Japanese plans Foreign plans
December 31 December 31
2016 2015 2016 2015
(Millions of yen) (Millions of yen)
Other assets 976 814 1,346 9,986
Accrued expenses — — (840 ) (1,123 )
Accrued pension and
severance cost (239,547 ) (155,589 ) (167,653 ) (140,673 )
(238,571 ) (154,775 ) (167,147 ) (131,810 )
Amounts recognized in
accumulated other comprehensive income (loss) at December 31,
2016 and 2015 before the effect of income taxes are as
follows:
Japanese plans Foreign plans
December 31 December 31
2016 2015 2016 2015
(Millions of yen) (Millions of yen)
Actuarial loss 251,078 208,946 116,930 71,750
Prior service
credit (71,439 ) (79,935 ) (2,652 ) (2,567 )
179,639 129,011 114,278 69,183
The accumulated benefit
obligation for all defined benefit plans was as follows:
Japanese plans Foreign plans
December 31 December 31
2016 2015 2016 2015
(Millions of yen) (Millions of yen)
Accumulated benefit
obligation 869,355 740,545 377,004 338,160 The projected benefit
obligations and the fair value of plan assets for the pension plans
with projected benefit obligations in excess of plan assets, and
the accumulated benefit obligations and the fair value of plan
assets for the pension plans with accumulated benefit obligations
in excess of plan assets are as follows:
Japanese plans Foreign plans
December 31 December 31
2016 2015 2016 2015
(Millions of yen) (Millions of yen)
Plans with projected
benefit obligations in excess of plan
assets:
Projected benefit
obligations 905,975 777,458 390,942 346,749
Fair value of plan
assets 666,428 621,869 222,449 204,953
Plans with accumulated
benefit obligations in excess of plan assets:
Accumulated benefit
obligations 867,706 731,537 375,860 331,351
Fair value of plan
assets 664,586 615,963 222,449 200,891
Components of net
periodic benefit cost and other amounts recognized in other
comprehensive income (loss) Net periodic benefit cost
for Canon’s employee retirement and severance defined benefit
plans for the years ended December 31, 2016, 2015 and 2014
consisted of the following components:
Japanese plans Foreign plans
Years ended December 31 Years ended December 31
2016 2015 2014 2016 2015 2014
(Millions of yen) (Millions of yen)
Service cost 29,367 30,009 26,445 6,816 7,760 6,801
Interest cost 8,238 8,008 10,772 8,792 10,572 10,654
Expected return on plan
assets (19,443 ) (19,579 ) (18,018 ) (10,012 ) (11,857 ) (10,637 )
Amortization of prior
service credit (13,230 ) (12,592 ) (12,800 ) 85 (145 ) (61 )
Amortization of actuarial
loss 10,944 10,402 10,023 2,185 3,839 1,698
(Gain) loss on curtailments
and settlements — — — — — (9,370 )
15,876 16,248 16,422 7,866 10,169 (915 )
Other changes in plan
assets and benefit obligations recognized in other comprehensive
income (loss) for the years ended December 31, 2016, 2015 and
2014 are summarized as follows:
Japanese plans Foreign plans
Years ended December 31 Years ended December 31
2016 2015 2014 2016 2015 2014
(Millions of yen) (Millions of yen)
Current year actuarial
(gain) loss 53,076 9,519 33,800 47,365 6,302 37,366
Current year prior service
credit (4,734 ) — — — (2,655 ) —
Amortization of actuarial
loss (10,944 ) (10,402 ) (10,023 ) (2,185 ) (3,839 ) (1,698 )
Amortization of prior
service credit 13,230 12,592 12,800 (85 ) 145 61
Curtailments and
settlements — — — — — (16,725 )
50,628 11,709 36,577 45,095 (47 ) 19,004
The estimated prior service
credit and actuarial loss for the defined benefit pension plans
that will be amortized from accumulated other comprehensive income
(loss) into net periodic benefit cost over the next year are
summarized as follows:
Japanese plans Foreign plans
(Millions of yen) (Millions of yen)
Prior service
credit (13,163 ) 43
Actuarial loss 13,852 5,765 Assumptions Weighted-average
assumptions used to determine benefit obligations are as
follows:
Japanese plans Foreign plans
December 31 December 31
2016 2015 2016 2015
Discount rate 0.7 % 1.1 % 2.2 % 3.0 %
Assumed rate of increase in
future compensation levels 2.6 % 3.0 % 2.1 % 2.0 %
Weighted-average
assumptions used to determine net periodic benefit cost are as
follows:
Japanese plans Foreign plans
Years ended December 31 Years ended December 31
2016 2015 2014 2016 2015 2014
Discount rate 1.1 % 1.1 % 1.6 % 3.0 % 2.9 % 3.9 %
Assumed rate of increase in
future compensation levels 3.0 % 3.0 % 3.0 % 2.0 % 2.0 % 2.3 %
Expected long-term rate of
return on plan assets 3.1 % 3.1 % 3.1 % 4.4 % 5.6 % 4.9 % 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 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 Canon’s model
portfolio for Japanese plans consists of three major components:
approximately 20% is invested in equity securities, approximately
55% is invested in debt securities, and approximately 25% is
invested in other investment vehicles, primarily consisting of
investments in life insurance company general accounts. Outside Japan, investment
policies vary by country, but the long-term investment objectives
and strategies remain consistent. Canon’s model portfolio for
foreign plans has been developed as follows: approximately 40% is
invested in equity securities, approximately 30% is invested in
debt securities, and approximately 30% is invested in other
investment vehicles, primarily consisting of investments in real
estate assets. The equity securities are
selected primarily from stocks that are listed on the securities
exchanges. Prior to investing, Canon has investigated the business
condition of the investee companies, and appropriately diversified
investments by type of industry and other relevant factors. The
debt securities are selected primarily from government bonds,
public debt instruments, and corporate bonds. Prior to investing,
Canon has investigated the quality of the issue, including rating,
interest rate, and repayment dates, and has appropriately
diversified the investments. Pooled funds are selected using
strategies consistent with the equity and debt securities described
above. As for investments in life insurance company general
accounts, the contracts with the insurance companies include a
guaranteed interest rate and return of capital. With respect to
investments in foreign investment vehicles, Canon has investigated
the stability of the underlying governments and economies, the
market characteristics such as settlement systems and the taxation
systems. For each such investment, Canon has selected the
appropriate investment country and currency.
The three levels of input
used to measure fair value are more fully described in Note 20. The
fair values of Canon’s pension plan assets at
December 31, 2016 and 2015, by asset category, are as
follows:
December 31, 2016
Japanese plans Foreign plans
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
(Millions of yen)
Equity
securities:
Japanese companies
(a) 46,630 — — 46,630 — — — —
Foreign
companies 7,902 — — 7,902 22,680 — — 22,680
Pooled funds (b) — 133,023 — 133,023 — 62,641 — 62,641
Debt securities:
Government bonds
(c) 99,157 — — 99,157 11,558 — — 11,558
Municipal bonds — 1,317 — 1,317 — 2,577 — 2,577
Corporate bonds — 14,298 — 14,298 — 19,989 — 19,989
Pooled funds (d) — 121,066 — 121,066 — 22,296 — 22,296
Mortgage backed securities
(and other asset backed securities) — 13,612 — 13,612 — — — —
Life insurance company
general accounts — 128,220 — 128,220 — 6,898 — 6,898
Other assets — 102,127 84 102,211 — 76,276 24 76,300
153,689 513,663 84 667,436 34,238 190,677 24 224,939
December 31, 2015
Japanese plans Foreign plans
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
(Millions of yen)
Equity
securities:
Japanese companies
(e) 49,847 — — 49,847 — — — —
Foreign
companies 3,287 — — 3,287 18,661 — — 18,661
Pooled funds (f) — 125,850 — 125,850 — 66,296 — 66,296
Debt securities:
Government bonds
(g) 142,015 — — 142,015 48 — — 48
Municipal bonds — 1,248 — 1,248 — 2,587 — 2,587
Corporate bonds — 13,532 — 13,532 — 21,009 — 21,009
Pooled funds (h) — 120,364 — 120,364 — 34,564 — 34,564
Mortgage backed securities
(and other asset backed securities) — 10,462 — 10,462 — 137 — 137
Life insurance company
general accounts — 125,759 — 125,759 — 6,190 — 6,190
Other assets — 33,432 779 34,211 — 68,378 — 68,378
195,149 430,647 779 626,575 18,709 199,161 — 217,870
(a) The plan’s equity
securities include common stock of the Company and certain of its
subsidiaries in the amounts of ¥187 million.
(b) These funds invest in
listed equity securities consisting of approximately 25% Japanese
companies and 75% foreign companies for Japanese plans, and mainly
foreign companies for foreign plans.
(c) This class includes
approximately 85% Japanese government bonds and 15% foreign
government bonds for Japanese plans, and mainly foreign government
bonds for foreign plans.
(d) These funds invest in
approximately 25% Japanese government bonds, 50% foreign government
bonds, 5% Japanese municipal bonds, and 20% corporate bonds for
Japanese plans. These funds invest in approximately 70% foreign
government bonds and 30% corporate bonds for foreign
plans.
(e) The plan’s equity
securities include common stock of the Company and certain of its
subsidiaries in the amounts of ¥325 million.
(f) These funds invest in
listed equity securities consisting of approximately 25% Japanese
companies and 75% foreign companies for Japanese plans, and mainly
foreign companies for foreign plans.
(g) This class includes
approximately 85% Japanese government bonds and 15% foreign
government bonds for Japanese plans, and mainly foreign government
bonds for foreign plans.
(h) These funds invest in
approximately 25% Japanese government bonds, 50% foreign government
bonds, 5% Japanese municipal bonds, and 20% corporate bonds for
Japanese plans. These funds invest in approximately 75% foreign
government bonds and 25% corporate bonds for foreign
plans. Each level into which
assets are categorized is based on inputs used to measure the fair
value of the assets, and does not necessarily indicate the risks or
ratings of the assets. Level 1 assets are
comprised principally of equity securities and government bonds,
which are valued using unadjusted quoted market prices in active
markets with sufficient volume and frequency of transactions.
Level 2 assets are comprised principally of pooled funds that
invest in equity and debt securities, corporate bonds, investments
in life insurance company general accounts and other assets. Pooled
funds are valued at their net asset values that are calculated by
the sponsor of the fund and have daily liquidity. Corporate bonds
are valued using quoted prices for identical assets in markets that
are not active. Investments in life insurance company general
accounts are valued at conversion value. Other assets are comprised
principally of interest bearing cash and hedge funds. The fair value of
Level 3 assets, consisting of hedge funds, was
¥108 million and ¥779 million at
December 31, 2016 and 2015, respectively. Amounts of actual
returns on, and purchases and sales of, these assets during the
years ended December 31, 2016 and 2015 were not
significant. The fair values of plan
assets by each asset category of TMSC are calculated based on a
pro-rata basis of total plan assets of Toshiba Corporate Pension
Fund. Contributions Canon expects to contribute
¥14,179 million to its Japanese defined benefit pension
plans and ¥8,203 million to its foreign defined benefit
pension plans for the year ending December 31,
2017.
Estimated future
benefit payments The following benefit
payments, which reflect expected future service, as appropriate,
are expected to be paid:
Japanese plans Foreign plans
(Millions of yen) (Millions of yen)
Year ending December 31:
2017 30,021 9,549
2018 32,431 9,920
2019 33,936 10,070
2020 34,833 10,460
2021 36,715 10,905
2022 –
2026 203,010 61,681 Multiemployer pension
plans The amounts of cost
recognized for the multiemployer pension plans primarily in the
Netherlands for the years ended December 31, 2016, 2015 and
2014 were ¥3,482 million, ¥3,864 million and
¥2,815 million, respectively. The multiemployer pension
plan in which the subsidiaries in the Netherlands participated was
96% funded as of December 31, 2015. The collective bargaining
agreements have no expiration date. Canon is not liable for other
participating employers’ obligations under the terms and
conditions of the agreements. Defined contribution
plans The amounts of cost
recognized for the defined contribution pension plans of the
Company and certain of its subsidiaries for the years ended
December 31, 2016, 2015 and 2014 were
¥17,603 million, ¥17,277 million and
¥15,077 million, respectively. |
