Bloomberg News

Olympus Takes $1.3 Billion Balance Sheet Hit to Dodge Delisting

December 22, 2011

Dec. 15 (Bloomberg) -- Olympus Corp.’s revision of earnings forced a $1.3 billion cut in net assets that now threatens its ability to recover from an accounting scandal that has wiped half the value from the company’s stock.

The Japanese camera maker yesterday filed corrected financial statements for more than five years to avoid the immediate threat of delisting from the Tokyo Stock Exchange. In doing so, Olympus revealed a weakened balance sheet that sparked a downgrade of its debt to one level above junk.

Olympus has been reeling since Michael Woodford questioned inflated fees and takeover costs after he was fired as chief executive officer in October. Having admitted to a 13-year scheme to hide losses, and after it purged senior executives, Olympus still faces criminal probes, a battle for management control and a TSE review that may yet see it ejected from the world’s second-biggest bourse.

“Even if we can assume they’ve put their problems behind them and will stay listed, the instability will likely continue amid questions about who runs the company, whether new management can pull things together, and its finances,” said Koji Toda, chief fund manager at Resona Bank Ltd. in Tokyo. “They avoided insolvency but their capital ratio fell as low as 5 percent, which is a weak financial base.”

Net assets fell to 46 billion yen ($590 million) as of Sept. 30 from 151 billion yen reported in the previous quarter. That took the ratio to total assets to 4.8 percent, compared with the 44 percent average of 15 global peers in the precision- engineering sector, data compiled by Bloomberg show.

Credit Cut

“Equity capital has eroded more than expected,” Tokyo- based Rating & Investment Information Inc. said in a statement announcing its decision to cut Olympus two levels to BBB-, with a view to a further downgrade. The rating is one above non- investment, according to Bloomberg data. “The possibility of additional losses from a lawsuit and other factors also cannot be ruled out.”

R&I is the only company with a credit rating on Olympus, according to Bloomberg data.

Olympus shares closed 4.1 percent lower, rebounding from a 19 percent slump after it began filing with the Financial Services Agency yesterday. The TSE removed the company from its watch list for automatic delisting.

The stock plunged as much as 81 percent, wiping $7.1 billion off the company’s market value, after Woodford’s Oct. 14 dismissal. The shares have recouped about half that loss as investors bet the fallout from the scandal will be contained and delisting avoided.


Olympus now needs to show its problems were confined to a “rotten” core of senior management, and that there are no more significant revisions.

Law enforcement agencies in Japan, the U.K. and the U.S. are probing the company after it admitted to filing false accounts and hiring a network of advisers who set up offshore vehicles to route false takeover costs and advisory fees back to Olympus. These were used to cancel out investment losses dating back to the 1990s.

Olympus inflated fees and overpaid for companies it bought with the intention of increasing goodwill, according to the Dec. 6 findings of an independent panel set up to investigate the fraud. Hisashi Mori, fired as executive vice president, and Hideo Yamada, a former company auditor, planned to write down the goodwill over years to cancel out the hidden losses.

Goodwill was 121.7 billion yen as of Sept. 30, from the previously reported 168 billion yen at June 30.

Consolidated Funds

Olympus, which restated earnings since 2007, consolidated 13 investment funds used in its cover-up. That led the company to cut the value of its earned surplus as of April 2006 by 117.3 billion yen, it said.

Olympus had a net loss of 32 billion yen for the fiscal first-half ended Sept. 30, compared with a revised net income of 3.8 billion yen a year earlier. Revenue was 414.5 billion yen for the six months, from 417.3 billion yen a year earlier.

The company withdrew its earnings forecasts for this fiscal year.

Three former Olympus chairmen and at least three senior aides were “rotten to the core,” according to the Dec. 6 report. Others “involved in the fraudulent accounting one way or the other” should be removed, it said.

Woodford yesterday appeared before lawmakers considering changes to the country’s corporate governance laws. The 51-year- old Briton has said he plans to propose a new slate of directors and that he would like to be reinstated.

While the company needs a capital injection, it should avoid an alliance and remain independent, he said.

Revamp, Vote

Olympus President Shuichi Takayama has said he wants to win back investor confidence by revamping management and carrying out an inquiry to find other executives involved in the cover- up. Takayama last week said shareholders would get to vote on new management late February at the earliest.

Repeated attempts to reach Olympus executives accused of being involved in the schemes have failed.

“We can’t ignore the fact Olympus deceived everyone for more than a decade, but the impact on all the stakeholders involved should be taken into account when deciding on delisting,” said Manabu Tamaru, a senior investment manager at Baring Asset Management Ltd. in Tokyo. “The best outcome would be to punish the people involved but keep Olympus on the TSE.”

The exchange may still remove the stock if it considers the cover-up had a “significant” impact, though the rules are unclear about how that is defined.

“The TSE will investigate the incident for another month or two while law enforcement agencies look into it,” Yoshihiro Ito, chief strategist at Okasan Online Securities Co. in Tokyo, said. “I don’t think the dust will settle smoothly from here because this was such a big incident.”

--With assistance from John Brinsley, Masaaki Iwamoto, Sachiko Sakamaki, Kazuyo Sawa and Yoshiaki Nohara in Tokyo. Editors: Ben Richardson, Mohammed Hadi

To contact the reporter on this story: Mariko Yasu in Tokyo at

To contact the editor responsible for this story: Ben Richardson at

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