Olympus 2014 Annual Report Download - page 41

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 credit worthiness 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 affi liated 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 debt extend up to 7 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
reduce 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 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 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 30 “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, 2014, 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
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 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-
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 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.
2. Changes in Accounting Policies
(a) Adoption of New Accounting Standard for Retirement Bene ts and Related Guidance
On May 17, 2012, the Accounting Standards Board of Japan (“ASBJ”) issued the “Accounting Standard for Retirement Benefi ts” (ASBJ
Statement No. 26, hereinafter “Retirement Benefi t Implementation Standard”) and the “Guidance on Accounting Standard for Retirement
Benefi ts” (ASBJ Guidance No. 25, hereinafter “Retirement Benefi t Implementation Guidance”). The Company adopted Retirement Benefi t
Implementation Standard and Retirement Benefi t Implementation Guidance except for the provisions of the main clauses of Paragraph 35
ofthe Retirement Benefi t Accounting Standard and Paragraph 67 of the Retirement Benefi t Application Guidance, effective March 31, 2014.
This amendment requires the Company to recognize the difference between the projected benefi t obligation and plan assets as “liabilities for
retirement benefi ts” and, therefore, records unrecognized actuarial gain or loss and unrecognized past service costs under “liabilities for re-
tirement benefi ts.” In the case that the amount of plan assets exceeds the amount of the projected benefi t obligation, the excess is recorded
in “net defi ned benefi t assets.”
This adoption is in accordance with the transitional provision stipulated in Paragraph 37 of the Retirement Benefi t Accounting Standard
and the effect of the change has been added to or deducted from “retirement benefi ts liability adjustments” under “accumulated other
comprehensive income” as of March 31, 2014.
As a result, as of March 31, 2014, the Company recorded “net defi ned benefi t assets” of ¥28,217 million ($273,951 thousand) and
“liabilities for retirement benefi ts” of ¥27,291 million ($264,961 thousand). In addition, this adoption increased “accumulated other compre-
hensive income” by ¥2,665 million ($25,874 thousand) and increased net assets per share by ¥7.79 ($0.076) as of March 31, 2014.
“Pension liability adjustments of foreign subsidiaries” which had been separately presented in “accumulated other comprehensive in-
come” prior to the adoption of the Retirement Benefi t Accounting Standard and related guidance was included in “retirement benefi ts liability
adjustments” as of March 31, 2014.
(b) Application of IAS No. 19 “Employee Bene ts”
In line with the issuance of IAS No. 19, “Employee Benefi ts” (revised on June 16, 2011) to be applied for fi scal years beginning on or after
January 1, 2013, certain overseas subsidiaries adopted IAS No. 19 effective this fi scal year and changed their method of recognizing
actuarial gain or loss.
This change has been applied retrospectively to the consolidated fi nancial statements for the fi scal year ended March 31, 2013. The
impact of this retrospective application for the fi scal year ended March 31, 2013 is immaterial.
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) and certain provisions were applied effective March 31, 2014 as described 2. (a).
In accordance with the transitional provision, the remaining provisions are permitted to apply effective April 1, 2014.
The Company will apply the remaining provisions effective April 1, 2014 and change its method of calculating and estimating retirement
benefi t obligation and service costs.
The retroactive application is not required and the impact of the adoption of the revised accounting standard and guidance on the
consolidated fi nancial statements is expected to be immaterial.
Notes to the Consolidated Financial Statements
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OLYMPUS Annual Report 2014
78 OLYMPUS Annual Report 2014