Olympus 2014 Annual Report Download - page 46

The following table summarizes the reconciliation between the statutory tax rates and the Company’s effective tax rates for consolidated
fi nancial statement purposes for the years ended March 31, 2013 and 2014.
2013 2014
Japanese statutory tax rates .............................................................................................................................................. 38.0% 38.0%
Non-deductible expenses .............................................................................................................................................. 2.8 4.9
Non-taxable income ....................................................................................................................................................... (3.2) (14.0)
Effect of lower tax rates applied for overseas subsidiaries .............................................................................................. (8.0) (0.4)
Increase in valuation allowance ...................................................................................................................................... 120.7 (28.7)
Amortization of goodwill ................................................................................................................................................. 16.1 21.7
Effect of reorganization of group structure ...................................................................................................................... (109.9) (13.1)
Decrease in deferred tax assets due to tax rate change ................................................................................................. — 12.3
Other, net ....................................................................................................................................................................... 0.4 (3.7)
Effective tax rates .............................................................................................................................................................. 56.9% 17.0%
Signifi cant components of deferred tax assets and liabilities as of March 31, 2013 and 2014 were as follows:
Millions of yen
Thousands of
U.S. dollars
2013 2014 2014
Deferred tax assets
Inventories ..................................................................................................................................... ¥ 6,825 ¥ 6,456 $ 62,680
Prepaid expenses .......................................................................................................................... 5,915 5,024 48,777
Accrued bonuses .......................................................................................................................... 4,782 5,512 53,515
Investments in consolidated subsidiaries ....................................................................................... 3,894 4,515 43,835
Unrealized intercompany profi ts ..................................................................................................... 1,969 4,015 38,981
Depreciation of property, plant and equipment ............................................................................... 6,677 7,090 68,835
Amortization of intangible assets ................................................................................................... 4,620 4,186 40,641
Provision for retirement benefi ts ..................................................................................................... 9,793 ——
Liability for retirement benefi ts ....................................................................................................... — 8,393 81,485
Securities ...................................................................................................................................... 6,519 7,134 69,262
Loss carry forward ......................................................................................................................... 60,479 58,617 569,097
Other ............................................................................................................................................. 32,612 38,430 373,106
Sub-total ....................................................................................................................................... 144,085 149,372 1,450,214
Valuation allowance ....................................................................................................................... (97,526) (93,098) (903,864)
Total deferred tax assets ....................................................................................................................... 46,559 56,274 546,350
Prepaid pension expenses ............................................................................................................. (6,147) ——
Net defi ned benefi t assets ............................................................................................................. — (9,597) (93,175)
Basis differences in assets acquired and liabilities assumed upon acquisition ................................ (17,712) (14,788) (143,573)
Other ............................................................................................................................................. (17,236) (17,871) (173,505)
Total deferred tax liabilities .................................................................................................................... (41,095) (42,256) (410,253)
Net deferred tax assets ......................................................................................................................... ¥ 5,464 ¥ 14,018 $ 136,097
Following the promulgation on March 31, 2014, of the “Act for Partial Revision of the Income Tax Act, etc.” (Act No. 10 of 2014), the “Act for
Partial Revision of the Local Tax Act, etc.” (Act No. 4 of 2014), and the “Act for Local Corporation Tax” (Act No. 11 of 2014) were promulgat-
ed, the corporation tax rate was changed for the fi scal years beginning on or after April 1, 2014. In line with these changes, the effective tax
rate used to measure deferred tax assets and liabilities was changed from 38.0% to 35.6% for temporary differences expected to be elimi-
nated in the fi scal years beginning on or after April 1, 2014. As a result of this tax rate change, deferred tax assets (net of deferred tax liabili-
ties) decreased by ¥2,201 million ($21,369 thousand) and income taxes, deferred increased by the same amount as of and for the fi scal year
ended March 31, 2014.
15. Net Assets
Under the Japanese Corporate Law (the “Law”), the entire amount paid for new shares is required to be designated as common stock.
However, a company may, by a resolution of its board of directors, designate an amount not exceeding one-half of the prices of the new
shares as additional paid-in capital, which is included in capital surplus.
Under the Law, in cases where a dividend distribution of surplus is made, the smaller of an amount equal to 10% of the dividend or
the excess, if any, of 25% of common stock over the total of additional paid-in capital and legal earnings reserve must be set aside as
additional paid-in capital or legal earnings reserve. Legal earnings reserve is included in retained earnings in the accompanying consolidated
balance sheets.
13. Stock Option Plans
(1) March 31, 2013
There were no stock options outstanding as of March 31, 2013, because the subsidiary for which stock options to directors had vested was
sold and deconsolidated during the year ended March 31, 2013. No options that had already vested as of April 1, 2012 were exercised or
lapsed before the sale of the subsidiary.
(2) March 31, 2014
A summary of information regarding the consolidated subsidiaries’ stock option plans for the year ended March 31, 2014 was as follows:
Consolidated subsidiaries
Qualifi ed benefi ciaries .................................................................................................................................... 5 directors
20 executive offi cers
Class and number of shares for which new subscription rights were offered .................................................. Common stock
40,100
Grant date ..................................................................................................................................................... August 26, 2013
Exercise period .............................................................................................................................................. From August 27, 2013 to August 26, 2043
Number of unvested stock options:
As of March 31, 2013 ................................................................................................................................ —
Granted ..................................................................................................................................................... 40,100
Lapsed ...................................................................................................................................................... —
Vested ....................................................................................................................................................... 40,100
As of March 31, 2014 ................................................................................................................................ —
Number of unvested stock options:
As of March 31, 2013 ................................................................................................................................ —
Vested ....................................................................................................................................................... 40,100
Exercised ................................................................................................................................................... —
Lapsed ...................................................................................................................................................... 1,000
As of March 31, 2014 ................................................................................................................................ 39,100
For stock options exercised during the year:
Exercise price (yen) .................................................................................................................................... ¥—
Average price of common stock at the date of exercise (yen) ..................................................................... ¥—
Fair value per share at the grant date:
Exercise price (yen) .................................................................................................................................... ¥2,940
No stock options were exercised during the year ended March 31, 2014.
The assumptions used to measure the fair value of stock options granted for the year ended March 31, 2014 were as follows:
First series of stock subscription rights
Estimate method ........................................................................................................................................... Black-Scholes option pricing model
Expected volatility (Note 1) ............................................................................................................................. 49.39%
Expected life (Note 2) ..................................................................................................................................... 15 years
Expected dividend (Note 3) ............................................................................................................................ ¥0 per share
Risk-free interest rate (Note 4) ........................................................................................................................ 1.28%
Notes:
1: Expected volatility was estimated based on the stock price data of the Company for 15 years from August 1998 to August 2013.
2: Because of the insuffi cient data and diffi culty in making a reasonable estimate, the expected life was based on the assumption that the stock subscription rights would have been
executed at the midpoint of the exercise period.
3: Expected dividend was based on the dividend paid during the year ended March 31, 2013.
4: Risk-free interest rate was the interest rate of Japanese government bonds corresponding to the expected life of the options.
14. Income Taxes
Income taxes applicable to the Company and its domestic consolidated subsidiaries consist of corporate tax, inhabitants’ tax and enterprise
tax, which in the aggregate resulted in normal statutory rates of approximately 38.0% and 38.0% for the years ended March 31, 2013 and
2014, respectively. Income taxes of foreign consolidated subsidiaries are based generally on tax rates applicable in their countries of
incorporation.
Notes to the Consolidated Financial Statements
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OLYMPUS Annual Report 2014
88 OLYMPUS Annual Report 2014