Ricoh 2005 Annual Report Download - page 23

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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 for the
fiscal 2005, and there are no material quantitative changes in market
risk exposure at March 31,2005. In the normal course of business,
Ricoh also faces risks that are either non-financial or nonquantifiable.
Such risks principally include credit risk and legal risk, and are not
represented in the tables.
FOREIGN CURRENCY RISK
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 of less than six months, while the contracts
with respect to the financing activities have the same maturities as the
underlying assets and liabilities.
The table provides information about Ricoh’s material derivative
financial instruments that are sensitive to foreign currency exchange
rates. The table relating to foreign exchange forward contracts presents
the notional amounts, weighted average exchange rates and estimated
fair value. These notional amounts generally are used to calculate the
contractual payments to be exchanged under the contracts.
INTEREST RATE RISK
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 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, related weighted average interest rates and estimated fair
value. For interest rate swaps, the table presents notional amounts by
expected maturity date, weighted average interest rates and estimated
fair value. Notional amounts are generally used to calculate the
contractual payments to be exchanged under the contract.
CREDIT RISK
Ricoh is also exposed to credit-related losses in the event of
nonperformance by counterparties to the financial instrument; however,
credit risk arising from the nonperformance of counterparties to meet
the terms of financial instrument contracts is generally limited to the
amounts by which the counterparties’ obligations exceed the
obligations of Ricoh. It is Ricoh’s policy to only enter into financial
instrument contracts with a diversified group of financial institutions
having credit ratings satisfactory to Ricoh to minimize the
concentration of credit risk. Therefore, Ricoh does not expect to incur
material credit losses on its financial instruments.
EQUITY PRICE RISK
Ricoh has a relatively small portion of marketable securities which are
subject to equity price risk arising from changes in their market prices.
Marketable securities consist of a diversified pool of Japanese equity
securities. Ricoh’s overall investment policy is to invest in highly-
liquid, low risk investments.
The table provides information about contractual maturities for
available-for-sale securities and the fair values for market risk sensitive
securities as of March 31, 2005.
To Our Shareholders
and Customers
Review of Operations
(General Information by Business Area)
Technology Corporate Social
Responsibility Environment Financial Section
22
ANNUAL REPORT 2005
FOREIGN EXCHANGE FORWARD CONTRACTS
Millions of yen Thousand of U.S. dollar
Average contractual Contract Estimated Contract Estimated
rates amounts fair value amounts fair value
US$/¥ 107.41 ¥537 ¥ 1 $5,019 $ 9
EUR/¥ 137.28 31,066 ( 253) 290,336 ( 2,364)
Millions of Yen
Thousand of U.S. dollar
Fair Fair
Cost Value Cost Value
Debt Securities
Due with in one year ¥137 ¥137 $1,281 $1,281
Due after one year
though five years 6,000 6,045 56,075 56,495
Equity Securities 7,479 16,451 69,897 153,748
Investment Trusts* 1,230 1,710 11,495 15,981
Total ¥14,846 ¥24,343 $138,748 $227,505
* Investment Trusts consist of investment in marketable debt and equity security.