Ricoh 1998 Annual Report Download - page 27

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Capital Expenditures
Ricoh invested ¥94.1 billion ($713 million) in additions to property, plant,
and equipment during the year, up 19.6%. These funds were allocated
mainly to build facilities for CD-R and CD-RW drives and media and
copier consumables.
Key Financial Ratios
We have provided the following ratios to facilitate analysis of Ricoh’s oper-
ations for fiscal 1996, 1997, and 1998.
F OREIGN C URRENCY R ISK
In the ordinary course of business, Ricoh uses foreign exchange forward
contracts to manage the effects of foreign currency exchange risk on
monetary assets and liabilities denominated in foreign currencies. The
contracts with respect to the operating activities generally have maturities
less than six months, while the contracts with respect to the financing ac-
tivities have the same maturities as underlying assets and liabilities.
The table below provides information about Ricoh’s major derivative
financial instruments that are sensitive to foreign currency exchange rates,
except for the contracts with respect to the financial activities. For foreign
exchange forward contracts, the table presents the notional amounts and
weighted average exchange rates. These notional amounts generally are
used to calculate the contractual payments to be exchanged under the
contracts.
Fiscal 1996 Fiscal 1997 Fiscal 1998
Return on sales 2.0% 2.2% 2.1%
Return on shareholders’
investment 5.6% 7.0% 6.7%
Current ratio 1.23 1.11 1.04
Debt-to-equity ratio
(interest-bearing debt to
shareholders’ investment) 1.63 1.71 1.42
Interest coverage 5.0 6.4 7.8
Market Risk
M ARKET R ISK E XPOSURE
Ricoh is exposed to market risks primarily from changes in foreign
currency exchange rates and interest rates, which affect outstanding debt
and certain assets and liabilities denominated in foreign currencies. In or-
der to manage these risks that arise in the normal course of business,
Ricoh enters into hedging transactions pursuant to its policies and proce-
dures covering such areas as counterparty exposure and hedging
practices. Ricoh does not hold or issue derivative financial instruments
for trading purposes, or to generate income.
Ricoh regularly assesses these market risks based on the policies and
procedures established to protect against adverse effects of these risks and
other potential exposures, primarily by reference to the market value of
the financial instruments. As a result of the latest assessment, Ricoh does
not anticipate any material losses in these areas.
US$/¥
Dfl/¥
F
OREIGN E XCHANGE F ORWARD C ONTRACTS
Contract amountsContract amounts
Thousands of
U.S. dollarsMillions of yen
Average contractual
rates
126.60
62.83
¥ 35,701
29,592
$ 270,462
224,182
I NTEREST R ATE R ISK
In the ordinary course of business, Ricoh enters into interest rate swap
agreements to reduce interest rate risk and to modify the interest rate
characteristics of its outstanding debt. These agreements primarily
involve the exchange of fixed and floating rate interest payments over the
life of the agreement without the exchange of the underlying principal
amounts.
The table on page 26 provides information about Ricoh’s major
derivative and other financial instruments that are sensitive to changes in
interest rates, including interest rate swaps and debt obligations. For debt
obligations, the table presents principal cash flows by expected maturity
date and related weighted average interest rates. For interest rate swaps,
the table presents notional amounts by expected maturity date and
weighted average interest rates. Notional amounts are generally used to
calculate the contractual payments to be exchanged under the contract.