Olympus 2013 Annual Report Download - page 40

76 OLYMPUS Annual Report 2013 77OLYMPUS Annual Report 2013
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 debt extend up to 8 years
and 2 months from the balance sheet date. The debt with variable interest rates is exposed to interest rate fl uctuation risk. However, to re-
duce such risk and fi x 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 foreign exchange forward 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
fl uctuation 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 34 “Derivative fi nancial 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 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 fi nancial diffi culties.
As of March 31, 2013, the carrying values of the fi nancial 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 identifi es the foreign currency exchange risk for each cur-
rency on a monthly basis and enters into foreign exchange forward 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 fi nancial instruments and the
fi nancial position of the issuers. In addition, the Group continuously evaluates whether securities other than those classifi ed as held-to-matu-
rity 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 del-
egation 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 fl ow plans on a timely basis and keeps its liquidity in hand
over a certain ratio of consolidated sales, in order to manage liquidity risk.
(4) Supplementary explanation of the estimated fair value of  nancial instruments
The fair value of fi nancial 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 refl ected in estimating the fair value, different assumptions and
factors could result in different fair values. In addition, the notional amounts of derivatives in Note 34 “Derivative fi nancial instruments” are not
necessarily indicative of the actual market risk involved in derivative transactions.
(p) 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 fi scal year. Differences arising
from translation are presented as “Foreign currency translation adjustments” in a separate component of net assets.
2. Accounting Standard for Accounting Changes and Error Corrections
Effective April 1, 2011, the Company adopted the “Accounting Standard for Accounting Changes and Error Corrections” (Accounting
Standards Board of Japan (“ASBJ”) Statement No. 24 issued on December 4, 2009) and the “Guidance on Accounting Standard for
Accounting Changes and Error Corrections” (ASBJ Guidance No. 24 issued on December 4, 2009).
3. New Accounting Standards Not Yet Applied
On May 17, 2012, the ASBJ issued “Accounting Standard for Retirement Benefi ts” (ASBJ Statement No. 26) and “Guidance on Accounting
Standard for Retirement Benefi ts” (ASBJ Guidance No. 25). The major changes are as follows:
(1) Treatment of actuarial gains and losses and past service costs
(a) Treatment in the balance sheet
Under the new standard and guidance, actuarial gains and losses and past service costs that are yet to be recognized in profi t or loss would
be recognized within the net asset section (accumulated other comprehensive income (“AOCI”)), after adjusting for tax effects, and the defi cit
or surplus would be recognized as a liability (liability for retirement benefi ts) or asset (asset for retirement benefi ts) without any adjustments.
(b) Treatment in the statement of operations and the statement of comprehensive income
Actuarial gains and losses and past service costs that arose in the current period and are yet to be recognized in profi t or loss would be in-
cluded in other comprehensive income and actuarial gains and losses and past service costs that were recognized in AOCI in prior periods
and then recognized in profi t or loss in the current period would be treated as reclassifi cation adjustments.
(2) Adoption date
The Company will adopt the new standard and guidance from the year end of the fi scal year starting on April 1, 2013.
(3) Impact on the Company
The Company is currently evaluating the effects of adoption of the new standard and guidance on the consolidated fi nancial statements.
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 fi nancial assets. Further, 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 poli-
cies of the Group for managing credit risk arising from receivables, each related division monitors 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 foreign exchange forward 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 affi liated companies and the investment trust fund.
Inaddition, the Group has loans receivable from affi liated companies accounted for by the equity method.
Substantially all trade payables—notes and accounts payable—have payment due dates within one year. Although the Group is ex-
posed to foreign currency exchange risk arising from those payables denominated in foreign currencies, foreign exchange forward contracts
are arranged to reduce the risk.