Konica Minolta 2006 Annual Report Download - page 49

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Net retirement benefit costs for the years ended March
31, 2006 and 2005 are as follows:
Thousands of
Millions of yen U.S. dollars
March 31 March 31
2006 2005 2006
a. Service costs ¥ 5,024 ¥ 7,426 $42,768
b. Interest costs 4,107 2,947 34,962
c. Expected return on
plan assets (2,046) (736) (17,417)
d. Amortization of
transition amounts —521 —
e. Actuarial differences
that are accounted
for as expenses 3,220 2,042 27,411
f. Prior service costs
that are accounted
for as expenses (1,536) (1,233) (13,076)
g. Retirement benefit costs
(a+b+c+d+e+f) 8,769 10,968 74,649
h. Loss on transition to
defined contribution
plans from defined
benefit plans —(160) —
i. Contribution to defined
contribution pension
plans 2,895 1,257 24,645
Total (g+h+i) ¥11,665 ¥12,065 99,302
Note: Retirement benefit costs of consolidated subsidiaries using
a simplified method are included in “a. Service costs.”
In addition to the above net retirement benefit costs, a provi-
sion for a special outplacement program of ¥6,484 million
(US$55,198 thousand) was recorded as other expenses.
Assumptions used in the calculation of the above infor-
mation are as follows:
2006 2005
a. Method of attributing Periodic allo- Periodic allo-
the retirement benefits cation method cation method
to periods of service for projected for projected
benefit benefit
obligations obligations
b. Discount rate Mainly Mainly
2.5% 2.5%
c. Expected rate of return Mainly Mainly
on plan assets 1.25% 1.25%
d. Amortization of Mainly Mainly
unrecognized prior 10 years 10 years
service cost
e. Amortization of Mainly Mainly
unrecognized actuarial 10 years 10 years
differences
f. Amortization of —Mostly
transition amount 5 years for
due to changes in subsidiaries
accounting standards
15. Derivatives
The Companies utilize derivative instruments including for-
ward foreign currency exchange contracts, interest rate
swaps and commodity futures, to hedge against the adverse
effects of fluctuations in foreign currency exchange rates,
interest rates and material prices. The Companies utilize
these derivatives as hedges to effectively reduce the risks
inherent in their assets and liabilities. These transactions are
not likely to have a material impact on the performance of
the Companies. Additionally, the Companies have a policy
of limiting the purpose of such transaction to hedging identi-
fied exposures only and they are not held for speculative or
trading purposes.
Risks associated with derivative instruments
Although the Companies are exposed to credit-related risks
and risks associated with the changes in interest rates and
foreign exchange rates, such derivative instruments are
limited to hedging purposes only and the risks associated
with these transactions are limited. All derivative contracts
entered into by the Companies are with selected major
financial institutions based upon their credit ratings and
other factors. Such credit-related risks are not anticipated to
have a significant impact on the Companies results.
Risk control system on derivative instruments
In order to manage the market and credit risks, the Finance
Division of the Company is responsible for setting or man-
aging the position limits and credit limits under the
Company’s internal policies for derivative instruments.
Resources are principally assigned to the functions, including
transaction execution, administration, and risk management,
independently, in order to clarify the responsibility and the
role of each function.
The principal policies on foreign currency exchange
instruments and other derivative instruments of the Company
and its major subsidiaries are approved by the Management
Committee of the Company. Additionally, the Expert
Committee, which consists of management from the Company
and its major subsidiaries meets regularly, at which time the
principal policies on foreign currency exchange instruments
and other derivative instruments are reaffirmed and the mar-
ket risks are assessed. All derivative instruments are reported
monthly to the respective officers. Market risks and credit
risks for other subsidiaries are controlled and assessed based
on the internal rules, and the derivative instruments are
approved by the respective President of each subsidiary.
Interest rate swap contracts are approved by the
Finance Manager of the President of the Company and other
subsidiaries, respectively.
Commodity futures contracts are approved by the respec-
tive President of each subsidiary based on internal rules.