Olympus Corp. President Shuichi Takayama attends a press conference on Nov. 8.
Olympus Corp. will likely be able to avoid holding liabilities in excess of its assets even after the firm corrects past earnings statements in which it inflated the "goodwill" of Gyrus Group PLC by 33.4 billion yen for the year ended in March 2011.
Goodwill refers to a company's intangible assets, what a buyer pays for its brand name and promising future. The recorded value of goodwill decreases with time after the purchase.
As Olympus had net assets of about 151.1 billion yen as of the end of June, the correction of its earnings statements will not likely result in its debts exceeding its assets. However, the company still may have to undergo downsizing and other restructuring to repair its financial situation.
According to documents the company released Thursday, the balance of Olympus' goodwill assets related to the purchase of Gyrus, ITX Corp., Altis Co. and other companies was 159.9 billion yen as of the end of September.
In the case of Gyrus, a British manufacturer of medical equipment, Olympus booked 80 percent, or 120.4 billion yen, of its purchase price as goodwill. Of this, 33.4 billion yen was inflated to hide losses and will likely be excluded from its assets.
The 33.4 billion yen was used to buy Gyrus' preferred stock and other assets that were given as advisory fees to a firm that brokered the buyout.
According to an investigation by the firm's third-party committee comprising lawyers and an accountant, Olympus purchased highly speculative financial products, and held latent losses following the collapse of the bubble economy in early 1990s.
However, it did not report those losses in its earnings statements, the committee said. Olympus' losses are believed to have reached about 130 billion yen in 2005.
Olympus' financial basis is weaker than that of other companies in the same industry, with its capital ratio standing at 13.5 percent as of the end of June. This ratio is expected to decrease further after the company corrects the value of the goodwill.
The company is expected to have 645.6 billion yen in interest-bearing debt at the end of March 2012, and plans to decrease the debt by nearly 40 percent to 408.7 billion yen at the end of March 2015. Olympus is likely to be forced to liquidate or restructure its 190 or so subsidiaries and keep down labor costs.
The Tokyo Stock Exchange designated Olympus shares as an issue under supervision. Olympus will be delisted from the TSE if it fails to submit its earnings report for the July-September period to financial authorities by Dec. 14.
If Olympus corrects its past financial statements, the TSE will again designate the company's share as an supervisory issue. It will ultimately decide whether Olympus has met the exchange's criteria for delisting, taking into account such factors as the scale of the inflated amount and how long the deception went on.
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Banks to continue support
The Bank of Tokyo-Mitsubishi UFJ and Sumitomo Mitsui Banking Corp. plan to continue providing financial support to Olympus, Japanese Bankers Association Chairman and BTMU President Katsunori Nagayasu said during a press conference Thursday.
"It's natural for a firm's main banks to support it when the firm's experiencing hardship," Nagayasu said.
"Since the investigation by the Olympus' third-party committee is also important for banks, we are observing it closely. If the committee finds some 'antisocial issues,' we'll be unable to give further assistance," he said.
(Nov. 19, 2011)
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