Konica Minolta 2007 Annual Report Download - page 55

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Assumption used in the calculation of the above information
are as follows:
2007 2006
Method of attributing Periodic Periodic
the retirement benefits allocation allocation
to periods of service method method
for projected for projected
benefit benefit
obligations obligations
Discount rate Mainly Mainly
2.5% 2.5%
Expected rate of return Mainly Mainly
on plan assets 1.25% 1.25%
Amortization of Mainly Mainly
unrecognized prior 10 years 10 years
service cost
Amortization of Mainly Mainly
unrecognized actuarial 10 years 10 years
differences
15. Derivatives
The Companies utilize derivative instruments including forward
foreign currency exchange contracts, interest rate swaps and com-
modity futures, to hedge against the adverse effects of fluctua-
tions 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.
Additionally, the Companies have a policy of limiting the purpose
of such transactions to hedging identified 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 antici-
pated 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 managing
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, admin-
istration, and risk management, independently, in order to clarify
the responsibility and the role of each function.
The principal policies on foreign currency exchange instru-
ments and other derivative instruments of the Company and its
major subsidiaries are approved by the Management Committee
of the Company. Additionally, a 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 reaf-
firmed and the market risks are assessed. All derivative instru-
ments are reported monthly to the respective officers. Market risks
and credit risks for other subsidiaries are controlled and assessed
based on 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 Company and the President of other subsidiaries,
respectively.
On April 30, 2003, a portion of the Konica lump-sum pay-
ment plan was transferred to a defined contribution pension plan.
On February 1, 2004, the Ministry of Health, Labour and
Welfare permitted the substitutional portion of the Konica Welfare
Pension Fund be returned to the government, and the remaining
portion of the Fund was integrated into a CDBP.
On March 1, 2004, the Ministry of Health, Labour and
Welfare permitted that the substitutional portion of the Minolta
Welfare Pension Fund be returned to the government, and the
remaining portion of the Fund was integrated into a CDBP. A por-
tion of the Minolta lump-sum payament plan was transferred to a
CDBP on the same date.
On April 1, 2004, apportion of the Minolta lump-sum pay-
ment plan was transferred to a defined contribution pension plan.
The reserve for retirement benefits as of March 31, 2007 and
2006 is analyzed as follows:
Thousands of
Millions of yen U.S. dollars
March 31 March 31
2007 2006 2007
a. Retirement benefit
obligations ¥(149,936) ¥(154,221) $(1,270,106)
b. Plan assets 108,766 108,320 921,355
c. Unfunded retirement
benefit obligations
(a+b) (41,170) (45,901) (348,751)
d. Unrecognized
actuarial differences (4,528) (5,572) (38,357)
e. Unrecognized
prior service costs (9,557) (11,768) (80,957)
f. Net amount on
consolidated balance
sheets (c+d+e) (55,256) (63,241) (468,073)
g. Prepaid pension costs 2,690 1,627 22,787
h. Accrued retirement
benefits (f-g) ¥ (57,947) ¥ (64,869) $ (490,868)
Note: Certain subsidiaries use a simplified method for the calculation of
benefit obligation.
Net retirement benefit costs for the years ended March 31,
2007 and 2006 are as follows:
Thousands of
Millions of yen U.S. dollars
March 31 March 31
2007 2006 2007
a. Service costs ¥ 6,383 ¥ 5,024 $ 54,070
b. Interest costs 4,244 4,107 35,951
c. Expected return on
plan assets (2,887) (2,046) (24,456)
d. Amortization of
actuarial differences 338 3,220 2,863
e. Amortization of
prior service costs (1,529) (1,536) (12,952)
f. Retirement benefit costs
(a+b+c+d+e) 6,549 8,769 55,476
g. Contribution to defined
contribution pension
plans 2,745 2,895 23,253
Total (f+g) ¥ 9,295 ¥11,665 $ 78,738
Note: Retirement benefit costs of consolidated subsidiaries using a sim-
plified method are included in “a. service costs.”
In addition to the above net retirement benefit costs, a provision for
a special outplacement program of ¥6,484 million was recorded
as other expenses for the year ended March 31, 2006.