Olympus 2015 Annual Report Download - page 39

(5) Risks Associated with Leakage of Information
The Group possesses important confidential information,
such as technical information and personal information of
customers and other interested parties. The Group has
taken various measures to prevent leakage of such informa-
tion outside the Group, including the preparation of internal
regulations, thorough employee education, and the
strengthening of security systems. Nevertheless, leakage
ofsuch information due to unforeseen circumstances may
affect the Group’s business performance or financial posi-
tion as a result of such factors as damage to the Group’s
corporate value, loss of public trust, or the payment of
compensation to customers or other interested parties
affected by the leakage.
(6) Risks Associated with Deferred Posting of
Past Losses
A case is pending in the Tokyo District Court in which the
Company is charged with violations of the Securities and
Exchange Act and the Financial Instruments and Exchange
Act with respect to the Company’s deferring of the posting
of losses on investment securities, etc., since around the
1990s and the use, via multiple funds, of both the fees paid
to financial advisors and funds to buy back preferred stock
in relation to the acquisition of Gyrus Group PLC as well as
the funds for the acquisition of three domestic companies
(Altis Co., Ltd., NEWS CHEF, Inc., and Humalabo Co., Ltd.)
to resolve unrealized losses on investment securities, etc.,
by deferring the posting of these losses. Furthermore,
shareholders of the Company have filed legal complaints
against the Company as a result of the Company’s inappro-
priate financial reporting and are claiming damages and
filing lawsuits against the Company, which may affect the
Group’s business performance or financial position. As
of June 26, 2015, the following major lawsuits have been
filedagainst the Company with pending claims totaling
¥82.3 billion.
In regard to the pending lawsuits in fiscal 2015, the
Company recorded ¥11,000 million as provision for loss on
litigation in current liabilities in consideration of the state of
progress of lawsuits 1. and 3. mentioned below.
1. On June 28, 2012, 49 plaintiffs (of which one company
withdrew its claim before the complaint was received),
including the Teachers’ Retirement System of the State
of Illinois as well as non-Japanese institutional investors
and pension funds that are shareholders of the Company,
filed a complaint against the Company (the date the
Company received the complaint was November 12,
2012). After a subsequent petition to change the object
of claim and withdrawal of claim by several plaintiffs, the
lawsuit has now been changed so that currently 46 plain-
tiffs are claiming compensation for damages of ¥20,842
million and 5% per annum interest on this amount for
theperiod from November 8, 2011, up to the payment
ofthe principal.
On March 27, 2015, an out-of-court settlement was
reached with investors and others including the plaintiffs
regarding this lawsuit for damages, under which the
Company agrees to pay the counterparties a settlement
package of up to ¥11,000 million in total, including the
amount to be paid for lawsuit 3. below.
2. On December 13, 2012, 68 plaintiffs, including the
California Public Employees’ Retirement System as well
as non-Japanese investors and pension funds that are
shareholders of the Company, filed a complaint against
the Company (the date the Company received the com-
plaint was March 29, 2013). After a subsequent petition
to amend the complaint and withdrawal of claim by
several plaintiffs, the lawsuit has been changed so that
currently 60 plaintiffs are claiming compensation for
damages of ¥5,759 million and 5% per annum interest
on this amount for the period from October 14, 2011,
upto the payment of the principal.
3. On June 27, 2013, 43 plaintiffs, including the California
State Teachers’ Retirement System as well as non-Japa-
nese investors and pension funds that are shareholders
of the Company, filed a complaint against the Company
(the date the Company received the complaint was July
16, 2013). After a subsequent withdrawal of claim by a
plaintiff and a merger between plaintiffs, the lawsuit has
been changed so that currently 40 plaintiffs are claiming
compensation for damages of ¥16,799 million and 5%
per annum interest on this amount for the period from
November 8, 2011, up to the payment of the principal.
On March 27, 2015, an out-of-court settlement was
reached with investors including the plaintiffs regarding
this lawsuit for damages, under which the Company
agrees to pay the counterparties a settlement package
ofup to ¥11,000 million in total, including the amount to
be paid for lawsuit 1. above.
4. On April 7, 2014, six plaintiffs, including Mitsubishi
UFJ Trust and Banking Corporation and five other trust
banks, filed a complaint against the Company (the date
the Company received the complaint was April 17, 2014)
seeking damages of ¥27,915 million and the interest
accrued to the damages incurred relating to each of the
shares at the rate of 5% per annum for the period from
the day immediately following the share acquisition trade
date of each of the shares that incurred losses up to the
payment of the incurred losses of the shares.
(7) Risks Associated with Internal Control Systems, etc.
The Olympus Group has developed a system for ensuring
appropriate and reliable financial reporting and effective
andefficient work processes, which it operates and
continuously improves. However, it cannot be ignored that,
regardless of the effectiveness of the internal control system
constructed by the Group, this system could fail to function
effectively due to actions arising from malicious intent or
gross negligence on the part of employees, changes in the
business environment that were not envisaged at the time
of the internal control system’s construction, or other factors.
Accordingly, it is possible that a violation of laws or regula-
tions or some other incident could occur in the future. If
such an incident were to occur, the Company may be
obliged to pay fines resulting from government sanctions,
penalties for criminal proceedings, or damages in civil law-
suits, or other expenses. Moreover, the Company may
suffer an adverse impact on its business from a loss of
social trust. Such events could have an adverse impact
onthe Company’s operating results.
(8) Risks Relating to Laws and Regulations
The Company is developing its operations on a global scale
in its various businesses, including the Medical Business,
which is conducted in a regulated industry. The Company
issubject to various laws and regulations, including medical
industry-related and antimonopoly laws in Japan as well
as other countries and regions. In addition, the Company
is subject to the anti-bribery provisions of the U.S. Foreign
Corrupt Practices Act of 1977 (FCPA), the U.K. Anti-Bribery
Act, and other anti-bribery laws in other countries and
regions. We are also subject to various laws targeting
fraudand abuse in the healthcare industry, including the
Actagainst Unjustifiable Premiums and Misleading
Representations of Japan and the Anti-kickback Act
and the False Claims Act of the United States.
In the Medical Business, government-sponsored
healthcare systems are being developed around the world.
Accordingly, Group companies and their distributors and
suppliers often do business with government-affiliated enti-
ties, healthcare providers, and officials. In addition, some
Group companies as well as their distributors and suppliers
operate in countries or regions in which there has been
governmental corruption in the past, and in certain circum-
stances strict compliance with anti-bribery laws, such as
those mentioned above, may conflict with local business
customs and practices. Furthermore, the various laws and
regulations targeting fraud and abuse in the healthcare
industry are wide-ranging and subject to changing interpre-
tation and application, which could restrict the sales or
marketing practices of Group companies.
Violations of these laws and regulations may be pun-
ishable by criminal or civil fines, imprisonment, or exclusion
from participation in certain national healthcare programs.
Many of the Group’s customers rely on reimbursement from
public health insurance and other government programs to
subsidize their medical expenditures. For this reason, if the
Company’s ability to participate in such programs were to
be restricted as a result of legal violations, it could adversely
affect the demand for Olympus products or the number of
procedures performed using these products.
The Company strives to fully comply with these laws
and regulations. However, if a legal violation were to occur,
regardless of whether or not the violation was intentional,
the Company’s business activities, financial position, perfor-
mance, cash flows, and stock price could be affected.
Since November 2011, U.S. subsidiary Olympus
Corporation of the Americas (OCA) has been under investi-
gation by the U.S. Department of Justice in relation to
potential violations of the Anti-kickback Act and the False
Claims Act alleged to have occurred in this company’s U.S.
Medical Business operations during the period from 2006
to 2011. OCA is currently engaged in ongoing discussions
with the Department of Justice aimed at resolving
thismatter. Based on the progress of these discussions,
theCompany recorded a provision for loss related to the
investigation under U.S. Anti-kickback Act and the related
Act of ¥58,883 million during fiscal 2015 to prepare for
future losses based on a rational estimate of the potential
settlement value. The expected amount of losses may
change in the future depending on developments in the
aforementioned investigation or discussions.
(9) Risks Relating to Duodenoscopes
In March 2015, the U.S. Department of Justice issued a
legal request to subsidiary Olympus Medical Systems Corp.
seeking information related to duodenoscopes manufac-
tured and sold by the Group. As of June 26, 2015, civil law-
suits have been filed in the United States against Company
subsidiaries on the charge that the plaintiffs had been
harmed as a result of Olympus Group duodenoscopes.
Depending on the developments inthese matters, the
Group’s performance and financial position may be affected.
(10) Other General Risks
Through its domestic and overseas subsidiaries and affili-
ates, etc., the Company operates its various businesses
around the world. These businesses may from time to time
be subject to various investigations by domestic and over-
seas authorities, which may involve discussions with or
reporting to authorities with respect to compliance with
laws (for instance, response to investigations concerning
compliance with the Antimonopoly Act or Pharmaceutical
Affairs Act or voluntary disclosure to the U.S. Department
ofJustice regarding compliance with the FCPA), and the
results of such investigations and consultations may affect
earnings. In addition, the occurrence of natural disasters,
disease, wars, terrorist attacks, or other incidents or the
occurrence of greater thanexpected interest rate increases
or exchange rate fluctuations may affect earnings.
Risk Information
75
OLYMPUS Annual Report 2015
74 OLYMPUS Annual Report 2015