MITSUBISHI ESTATE Annual Report 2014
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Financial section13 Other Income (Expenses)The components of “Other, net” in “Other income (expenses)” for each of the years ended March 31, 2014 and 2013 were as follows:Millions of yenThousands of U.S. dollars201420132014Amortization of negative goodwill—¥      835—Gain on sales of fixed assets¥   6,7026,165$   65,119Gain on negative goodwill4,942 1,374 48,021 Loss on disposal of fixed assets(4,029)(5,744)(39,154)Loss related to retirement of fixed assets(2,303)(24,338)(22,379)Impairment loss*1(32,644)(2,826)(317,187)Loss on valuation of equity investments(7,648)(8,985)(74,316)Provision for loss on guarantees—(7,030)—Other, net(1,083)(1,005)(10,523)¥(36,065)¥(41,554)$(350,421)*1. Impairment lossThe Company recorded consolidated impairment losses for the following asset groups for the fiscal year ended March 31, 2014:Major ApplicationCategoryLocationLeased assets, etc. (total 24 groups)Land, Buildings, etc.Osaka, Osaka Prefecture, Nagoya, Aichi Prefecture, etc.Asset grouping for the Company and its consolidated subsidiaries (collectively, the “Group”) was made based on a minimum unit that generates cash flows, which is substantially independent from cash flows of other assets or asset groups. Company condominiums are regarded as shared assets. As a result, for the fiscal year ended March 31, 2014, the book values of 24 asset groups, consisting of those for which the market prices fell considerably compared with the book values due to the decline of land prices and those for which profitability decreased considerably due to fallen rent levels or deteriorated market conditions, etc., were reduced to the respective collectible amounts and such reduced amounts were recorded as impairment losses in the amount of ¥32,644 million ($317,187 thousand).The breakdown of such impairment losses was ¥18,418 million ($178,963 thousand) in land, and ¥14,226 million ($138,224 thousand) in buildings and structures.The collectible amounts of asset groups are measured with net sale value or use value, and the net sale value is principally expressed as an appraised value by a real estate appraiser. Future cash flows mainly discounted at a rate of 5% are used to compute the use value.The Company recorded consolidated impairment losses for the following asset groups for the fiscal year ended March 31, 2013:Major ApplicationCategoryLocationLeased assets, etc.(total 19 groups)Land, Buildings, etc.Saitama, Saitama Prefecture, etc.Asset grouping for the Group was made based on a minimum unit that generates cash flows, which is substantially independent from cash flows of other assets or asset groups. Company condominiums are regarded as shared assets. As a result, for the fiscal year ended March 31, 2013, the book values of 19 asset groups, consisting of those for which the market prices fell considerably compared with the book values due to the decline of land prices and those for which profitability decreased considerably due to fallen rent levels or deteriorated market conditions, etc., were reduced to the respective collectible amounts and such reduced amounts were recorded as impairment losses in the amount of ¥2,826 million.The breakdown of such impairment losses was ¥1,615 million in land, and ¥1,210 million in buildings and structures.The collectible amounts of asset groups are measured with net sale value or use value, and the net sale value is principally expressed as an appraised value by a real estate appraiser. Future cash flows mainly discounted at a rate of 5% are used to compute the use value.OVERVIEW(1) Policy for financial instrumentsIn consideration of plans for capital investment, the Group raises funds mainly through bank borrowings and bond issues. In terms of fund management, the Group makes every effort to avoid market risks by emphasizing liquidity and shortening the fund management period. The Group uses derivatives for the purpose of hedging exposure to interest rate, reducing interest expenses, and hedging the risk of fluctuations in foreign exchange rates and do not enter into derivatives for speculative purpose.(2) Types of financial instruments and related riskTrade receivables – notes and accounts receivable – are exposed to credit risk in relation to customers. Trade receivables denominated in foreign currencies, which arise from overseas operation, are exposed to foreign currency exchange risk.Marketable securities and investment securities are exposed to market risk. Those securities are composed of mainly held-to-maturity debt securities and the shares of common stock of other companies with which the Group has business relationships.Equity investments are composed of mainly preferred equity investments in special purpose companies under the Law concerning Liquidation of Assets, investments in investment unit of trust held in real estates and investments in silent partnership for special purpose compa-nies. They are exposed to credit risks of issuers, risks of fluctuations in interest rates and market prices, respectively. Lease and guarantee deposit for leased assets are exposed to credit risks of customers.Substantially all trade payables – accounts and notes payable – have payment due dates within one year. Some of them denominated in foreign currencies are exposed to foreign currency exchange risk.Borrowings and bonds are taken out principally for the purpose of making capital investments and the repayment dates of the long-term debt extend up to 20 years from the balance sheet date. Certain long-term debt with variable interest rates is exposed to interest rate fluctua-tion risk. However, to reduce such risk for long-term debt bearing interest at variable rates, the Group utilizes derivative transactions (interest rate swap) as a hedging instrument. Derivative transactions include interest rate swaps, currency swaps and forward foreign exchange contracts. The Group also enters into interest rate swap transactions to fix interest expense for long-term debt bearing interest at variable rates and to reduce interest rate fluctuation risk. Some of the consolidated subsidiaries enter into interest swap and currency swap transactions in accordance with the same policies and purposes adopted by the Company. (3) Risk management for financial instruments(a)Monitoring of credit risk (the risk that customers or counterparties may default)In accordance with the internal policies for managing credit risk of the Group arising from receivables and lease and guarantee deposits, each related division in each business segment monitors credit 14 Financial Instruments66MITSUBISHI ESTATE CO., LTD.

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