Ricoh 2005 Annual Report Download - page 50

Risk Management Policy
Ricoh enters into various derivative financial instrument contracts in
the normal course of business in connection with the management of
its assets and liabilities.
Ricoh uses derivative instruments to reduce risk and protect market
value of assets and liabilities in conformity with the Ricoh’s policy.
Ricoh does not use derivative financial instruments for trading or
speculative purposes, nor is it a party to leveraged derivatives.
All derivative instruments are exposed to credit risk arising from the
inability of counterparties to meet the terms of the derivative contracts.
However, Ricoh does not expect any counterparties to fail to meet their
obligations because these counterparties are financial institutions with
satisfactory credit ratings. Ricoh utilizes a number of counterparties to
minimize the concentration of credit risk.
For eign Exchange Risk Management
Ricoh conducts business on a global basis and holds assets and
liabilities denominated in foreign currencies. Ricoh enters into foreign
exchange contracts and foreign currency options to hedge against the
potentially adverse impacts of foreign currency fluctuations on those
assets and liabilities denominated in foreign currencies.
Interest Rate Risk Management
Ricoh enters into interest rate swap agreements to hedge against the
potential adverse impacts of changes in fair value or cash flow
fluctuations on interest of its outstanding debt.
Fair Value Hedges
Changes in the fair value of derivative instruments and the related
hedged items designated and qualifying as fair value hedges are
included in other ( income) expenses on the consolidated statements of
income. There is no hedging ineffectiveness nor are net gains or losses
excluded from the assessment of hedge effectiveness for the years ended
March 31, 2003, 2004 and 2005 as the critical terms of the interest rate
swap match the terms of the hedged debt obligations.
Cash Flow Hedges
Changes in the fair value of derivative instruments designated and
qualifying as cash flow hedges are included in accumulated other
comprehensive income ( loss) on the consolidated balance sheets.
These amounts are reclassified into earnings as interest on the hedged
loans is paid. There is no hedging ineffectiveness nor are net gains or
losses excluded from the assessment of hedge effectiveness for the years
ended March 31, 2003, 2004 and 2005 as the critical terms of the
interest rate swap match the terms of the hedged debt obligations.
Ricoh expects that it will reclassify into earnings through other
( income) expenses during the next 12 months approximately ¥32
million ( $299 thousand) of the balance of accumulated other
comprehensive income as of March 31, 2005.
Undesignated Derivative Instr uments
Derivative instruments not designated as hedging instruments are held
to reduce the risk relating to the variability in exchange rates on assets
and liabilities denominated in foreign currencies. Changes in the fair
value of these instruments are included in other ( income) expenses on
the consolidated statement of income.
49 ANNUAL REPORT 2005
1 5 . DERIVATIVE FINANCIAL INSTRUMENTS
1 6 . COMMITMENTS AND CONTINGENT LIABILITIES
As of March 31, 2005, Ricoh had outstanding contractual commitments
for acquisition or construction of plant, equipment and other assets
aggregating ¥12,550 million ( $117,290 thousand).
As of March 31, 2005, Ricoh was also contingently liable as guarantor
for employees’ housing loans of ¥230 million ( $2,150 thousand) , all of
which were issued before January 1, 2003.
Ricoh made rental payments totaling ¥41,024 million, ¥40,339 million
and ¥39,000 million ( $364,486 thousand) for the years ended March
31, 2003, 2004 and 2005, respectively, under operating lease agreements
for office space and machinery and equipment, which are primarily
cancelable and renewable.
As of March 31, 2005, the Company and certain of its subsidiaries were
parties to litigation involving routine matters, such as patent rights. In
the opinion of management, the ultimate liability, if any, resulting from
such litigation will not materially affect the consolidated financial
position or the results of operations of Ricoh.
1 7 . DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
( a) Cash and cash equivalents, Time deposits, Trade
receivables, Short-term borr owings, Current
matur ities of long- term indebtedness, Trade payables
and Accrued expenses
The carrying amounts approximate fair values because of the short
maturities of these instruments.
( b) Mar ketable securities and Investment secur ities
The fair value of the marketable securities and investment securities is
principally based on quoted market price.
( c) Installment loans
The fair value of installment loans is based on the present value of
future cash flows using the current rate for similar instruments of
comparable maturity.
( d) Long-term indebtedness
The fair value of each of the long-term indebtedness instruments is
based on the quoted price in the most active market or the present value
of future cash flows associated with each instrument discounted using
the current borrowing rate for similar instruments of comparable
maturity.