Olympus 2015 Annual Report Download - page 45

4. Financial Instruments
Overview
(1) Policy for nancial instruments
In consideration of plans for capital investment, the Company and its consolidated subsidiaries (collectively, the “Group”) raise funds through
bank borrowings and issuance of bonds. The Group manages temporary cash surpluses through low-risk financial assets. Furthermore, the
Group raises short-term capital through bank borrowings. The Group uses derivatives for the purpose of reducing risk and does not enter
into derivatives for speculative or trading purposes.
(2) Types of nancial instruments and related risk
Trade receivables—notes and accounts receivable—are exposed to credit risk in relation to customers. In accordance with the internal policies
of the Group for managing credit risk arising from receivables, each related division monitors the creditworthiness of their main customers
periodically, and monitors due dates and outstanding balances by individual customer. In addition, the Group is exposed to foreign currency
exchange risk arising from receivables denominated in foreign currencies. In principle, the foreign currency exchange risks deriving from the
trade receivables denominated in foreign currencies are hedged by forward foreign exchange contracts.
Marketable securities and investment securities are exposed to market risk. Those securities are composed of mainly the shares of
common stock of other companies with which the Group has business relationships or affiliated companies and the investment trust fund.
Substantially all trade payables—notes and accounts payable—have payment due dates within one year. Although the Group is exposed
to foreign currency exchange risk arising from those payables denominated in foreign currencies, forward foreign exchange contracts are
arranged to reduce the risk.
Short-term borrowings, long-term debt, bonds and lease obligations are raised mainly in connection with business activities, and long-
term debt is taken out principally for the purpose of making capital investments. The repayment dates of these debts extend up to 7 years
and 2 months from the balance sheet date. The debt with variable interest rates is exposed to interest rate fluctuation risk. However, to
reduce such risk and fix interest expense for certain debt-bearing interest at variable rates, the Group utilizes interest rate swap transactions
as a hedging instrument.
Regarding derivatives, the Group enters into forward foreign exchange contracts to reduce the foreign currency exchange risk arising
from the trade receivables and payables denominated in foreign currencies. The Group also enters into interest rate swap transactions
to reduce fluctuation risk deriving from interest payable for short-term borrowings, long-term borrowings and bonds bearing interest at
variablerates.
Information regarding the method of hedge accounting, hedging instruments and hedged items, hedging policy, and the assessment
ofthe effectiveness of hedging activities is found in Note 29 “Derivative financial instruments.”
(3) Risk management for nancial instruments
(a) Monitoring of credit risk (the risk that customers or counterparties may default)
In accordance with the internal policies of the Group for managing credit risk arising from receivables, each related division monitors the
creditworthiness of their main customers periodically, and monitors due dates and outstanding balances by individual customer. In addition,
the Group is making efforts to identify and mitigate risks of bad debts from customers who are having financial difficulties.
As of March 31, 2014, the carrying values of the financial assets represent the maximum credit risk exposures of the Group.
(b) Monitoring of market risks (the risks arising from uctuations in foreign exchange rates, interest rates and others)
For trade receivables and payables denominated in foreign currencies, the Group identifies the foreign currency exchange risk for each
currency on a monthly basis and enters into forward foreign exchange contracts to hedge such risk. In order to mitigate the interest rate
riskfor loans payable and bonds bearing interest at variable rates, the Group may also enter into interest rate swap transactions.
For marketable securities and investment securities, the Group periodically reviews the fair values of such financial instruments and
the financial position of the issuers. In addition, the Group continuously evaluates whether securities other than those classified as held-to-
maturity should be maintained by taking into account their fair values and relationships with the issuers.
In executing derivative transactions, the division in charge of each derivative transaction follows the internal policies, which set forth
delegation of authority and maximum upper limit on positions. Monthly reports including actual transaction data are submitted to the director
in charge of treasury function and the Board of Directors for their review.
(c) Monitoring of liquidity risk (the risk that the Group may not be able to meet its obligations on scheduled due dates)
Based on the report from each division, the Group prepares and updates its cash flow plans on a timely basis and keeps its liquidity in hand
over a certain ratio of consolidated sales, in order to manage liquidity risk.
(s) Translation of Foreign Currency Financial Statements
In accordance with the accounting standards for foreign currency translations, the balance sheet accounts of the foreign consolidated
subsidiaries are translated at exchange rates as of the balance sheet date. Net assets excluding minority interests are translated at historical
exchange rates. Revenues and expenses are translated at average exchange rates for each corresponding fiscal year. Differences arising
from translation are presented as “Foreign currency translation adjustments” in a separate component of net assets.
2. Changes in Accounting Policies
Changes in Accounting Standard for Retirement Benefits
The Company and its domestic subsidiaries adopted Paragraph 35 of “Accounting Standard for Retirement Benefits” (Accounting Standards
Board of Japan (“ASBJ”) Statement No. 26 of May 17, 2012) and the main clause of Paragraph 67 of “Guidance on Accounting Standard
for Retirement Benefits” (ASBJ Guidance No. 25 of May 17, 2012) effective as of April 1, 2014. As a result, the methods for determining the
retirement benefit obligations and current service costs have been revised in the following respects: the method for attributing expected
benefit to periods has been changed from the straight-line method to the benefit formula method, and the method for determining the dis-
count rate has been changed to use a single weighted-average discount rates reflecting the estimated timing and amount of benefit payment.
The cumulative effect of changing the methods for determining the retirement benefit obligations and current service costs was recog-
nized by adjusting retained earnings at April 1, 2014, in accordance with the transitional treatment provided in Paragraph 37 of Accounting
Standard for Retirement Benefits.
As a result, liability for retirement benefits decreased ¥142 million and retained earnings increased ¥89 million at April 1, 2014. The effect
of this application for the year ended March 31, 2015 is immaterial to the consolidated statement of operations. Also, the effect of this appli-
cation on net assets per share and net loss per share as of and for the year ended March 31, 2015 is immaterial.
3. Changes in Presentation
(1) Consolidated Statements of Operations
For the year ended March 31, 2015, “Settlement charge” and “Provision for loss on litigation,” which were presented separately under
“Other income (expenses)” for the year ended March 31, 2014, were presented in “Loss related to securities litigation” in aggregate, due to
the similar nature.
As a result, ¥6,256 million presented as “Settlement charge” and ¥11,000 million presented as “Provision for loss on litigation” in the con-
solidated statement of operations for the year ended March 31, 2014 were combined and restated as “Loss related to securities litigation.”
(2) Consolidated Statements of Cash Flows
“Settlement charge” above “Sub-total” and “Increase (decrease) in provision for loss on litigation” and “Settlement charge” under “Sub-total,”
which were presented separately under “Cash flows from operating activities” for the year ended March 31, 2014, were presented in “Loss
related to securities litigation” or “Loss related to securities litigation paid,” due to the similar nature.
As a result, ¥6,256 million presented as “Settlement charge” above “Sub-total” and ¥11,000 million presented as “Increase in provision
for loss on litigation” under “Cash flows from operating activities” in the consolidated statement of cash flows for the year ended March 31,
2014 were combined and restated as “Loss related to securities litigation,” while ¥6,256 million presented as “Settlement charge” under
“Sub-total” was restated as “Loss related to securities litigation paid.”
Notes to the Consolidated Financial Statements
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OLYMPUS Annual Report 2015
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