AR2017

64/90

2. Commitments and Contingent LiabilitiesThe Company and its consolidated subsidiaries had unused lines of credit for short-term financing aggregating ¥23,194 million (U.S. $206,743 thousand) and ¥22,208 million at March 31, 2017 and 2016, respectively.between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse.(r) Shareholders’ equityThe Corporation Law of Japan provides that an amount equal to 10% of the amount to be distributed as distributions of capital surplus (other than the capital reserve) and retained earnings (other than the legal reserve) be transferred to the capital reserve and the legal reserve, respectively, until the sum of the capital reserve and the legal reserve equals 25% of the common stock account. Such distributions can be made at any time by resolution of the shareholders or by the Board of Directors if certain conditions are met, but neither the capital reserve nor the legal reserve is available for distributions.(s) Hedge accounting(1)Hedge accounting methodThe exceptional accounting treatment (the “Tokurei-shori”) is applied with respect to interest rate swaps that meet the requirements to hedge the cash flow volatility of certain foreign currency-denominated loans. The Tokurei-shori and the designated hedge accounting (the “Furiate-shori”) are applied with respect to interest rate and currency swaps that meet the requirements to hedge the cash flow volatility caused by foreign exchange rate fluctuations on certain foreign currency-denominated loans.(2)Hedging instruments and hedged items1Hedging instruments......Interest rate swaps Hedging items.................Foreign currency-denominated loans2Hedging instruments......Interest rate and currency swaps Hedging items.................Foreign currency-denominated loans(3)Hedging policyIn accordance with the internal regulation, risk of fluctuations in interest rates and foreign exchange is hedged.(4)Method of evaluating the effectiveness of hedgesThe evaluation of effectiveness is omitted for interest rate swaps accounted for under the Tokurei-shori and for interest rate and currency swaps accounted for under the Tokurei-shori and Furiate-shori.(t) Changes in accounting principles(Changes in accounting principles that are difficult to distinguish from changes in accounting estimates)(Change in the depreciation method of property, plant and equipment)The Company and its domestic consolidated subsidiaries had convention-ally used the declining-balance method (straight line method for the buildings (excluding attached facilities) acquired on or after April 1, 1998) as the depreciation method of property, plant and equipment (excluding leased assets), which has been changed to the straight line method from this consolidated fiscal year.Based on its medium-term business plan “LIP-2016”, which was announced in 2014, the LINTEC Group (the “Group”) has been further promoting its global development and actively investing its management resources in growth areas such as innovative new products that will support the next generation.As part of these efforts, the Group has added a new research building and testing and research facilities, and when these new facilities commenced full operation in 2016, the Group re-examined its depreciation method, which appropriately reflected the condition of the use of the Group’s property, plant and equipment. As a result, the Group determined that comprehensively considering the following changes and altering the depreciation method to the straight-line method would enable more appropriate cost distribution throughout the period of use.(1)The latest, large testing and research facilities were installed during the addition of the research building in order to improve the Group’s development simulation capability, which resulted in an increase in the percentage of research and development facilities in its property, plant and equipment. Such R&D facilities will include large test coaters associated with factory mass production facilities, advanced analysis equipment, and other devices, which are expected to substantially accelerate the process from the initial stage of research to mass production. The Group plans to engage in development for the estab-lishment of the mass production process, and these R&D facilities will be operated steadily every fiscal year.(2)High-function products have been increasing as a proportion of the Company’s products in recent years, and improvements and additions to the coaters, which are major facilities in the Company’s property, plant and equipment, have been made in line with this increase. These manufacturing facilities as a whole wear at an average rate every fiscal year due to improvements in manufacturing technology thanks to R&D, etc. and the modification of the production system. In addition, operations are expected to be steady given the Company’s active improvement of facilities to meet rising demand in growth areas.As a result, the depreciation of this consolidated fiscal year decreased by ¥2,685 million (U.S. $23,933 thousand) from those using the conven-tional method, and operating income, ordinary income, and profit before income taxes have each increased by ¥2,399 million (U.S. $21,390 thousand).(u) Changes in presentation(Consolidated Balance Sheet)“Goodwill,” which was included in “Intangible assets” in the previous consolidated fiscal year, is separately presented in this consolidated fiscal year due to its increased materiality of the amount. To reflect this change in presentation, ¥2,357 million presented as “Intangible assets” in the consolidated balance sheet of the previous fiscal year has been reclassified into ¥22 million of “Goodwill” and ¥2,334 million of “Other.”(Consolidated Statement of Income)“Insurance income,” which was included in “Other income” under “Non-operating income” in the previous consolidated fiscal year, is separately presented in this consolidated fiscal year due to its increased quantitative materiality. To reflect this change in presentation, ¥318 million presented as “Other income” under “Non-operating income” in the consol-idated statement of income of the previous fiscal year has been reclassified into ¥42 million of “Insurance income” and ¥276 million of “Other income.”(v) Additional informationThe Accounting Standards Board of Japan (ASBJ) Guidance No. 26 issued the Implementation Guidance on Recoverability of Deferred Tax Assets on March 28, 2016, and the guidance has been applied from this consolidated fiscal year.LINTEC ANNUAL REPORT 201762FINANCIAL SECTION