Olympus 2011 Annual Report Download - page 45

OLYMPUS 2011 43
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 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 the long-term debt extend up to 9.5 years from the balance sheet date.
Long-term debt with variable interest rates is exposed to interest rate fluctuation risk. However, to reduce such risk and fix interest expense
for long-term 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 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 long-term debt 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 1 (e).
(3) Risk management for financial 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 credit
worthiness 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.
At the balance sheet date, 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 fluctuations 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 taking into account their fair values and relationships with the issuers.
In conducting 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 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 to manage liquidity risk.
(4) Supplementary explanation of the estimated fair value of financial instruments
The fair value of financial instruments is based on their quoted market price, if available. When there is no quoted market price available,
fair value is reasonably estimated. Since various assumptions and factors are reflected in estimating the fair value, different assumptions
and factors could result in different fair value. In addition, the notional amounts of derivatives in Note 25 “Derivative financial instruments”
are not necessarily indicative of the actual market risk involved in derivative transactions.
Estimated Fair Value of Financial Instruments
Carrying value of financial instruments on the consolidated balance sheets as of March 31, 2011 and 2010 and estimated fair value are
shown in the following table. The following table does not include financial instruments for which it is extremely difficult to determine the
fair value (Please refer to Notes 2 below).
(As of March 31, 2011) Millions of yen
Carrying Value
Estimated Fair
Value Difference
Assets
1) Cash and time deposits .................................................................................................. ¥ 213,561 ¥ 213,561 ¥ —
2) Notes and accounts receivable ..................................................................................... 141,176 141,176 —
3) Investment securities ..................................................................................................... 51,879 51,879 —
Total Assets ......................................................................................................................... ¥406,616 ¥406,616 ¥ —
Liabilities
1) Notes and accounts payable ......................................................................................... ¥ 68,715 ¥ 68,715 ¥ —
2) Short-term borrowings ................................................................................................... 64,094 64,094 —
3) Bonds, including current maturities ............................................................................. 110,360 111,750 1,390
4) Long-term debt, including current maturities ............................................................. 474,333 479,666 5,333
Total Liabilities .................................................................................................................... ¥717,502 ¥724,225 ¥6,723
Derivatives* ............................................................................................................................. ¥ (82) ¥ (82) ¥ —