Ricoh 2006 Annual Report Download - page 22

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laser printers, and m anufacturing facilities to m aintain or enhance
competitiveness in the industry. In fiscal year 2006, Ricoh also m ade a
strategic capital expenditure to consolidate som e of its operations to the
headquarters and domestic research and development facilities and
offices at the Ricoh Technology Center, and develop a color toner
factory in Japan. Ricoh projects that for the fiscal year ending March
31, 2007 its capital expenditures will am ount to approximately ¥90.0
billion ( $769 m illion) , principally for the following categories: digital
and networking equipment, development of a new polym erized toner
factory and new accounting and sales force automation and marketing
support systems.
Key Financial Ratios
We have provided the following ratios to facilitate analysis of the
Com pany’s operations for the fiscal years 2004, 2005 and 2006.
Market Risk
MARKET RISK EXPOSURE
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 denom inated in foreign
currencies. To a lesser extent, Ricoh is also exposed to equity price risk.
In order to m anage these risks that arise in the normal course of
business, Ricoh enters into various hedging transactions pursuant to its
policies and procedures covering such areas as counterparty exposures
and hedging practices. Ricoh does not hold or issue derivative
financial instrum ents for trading purposes or to generate income.
Ricoh regularly assesses these m arket 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 m arket
value of the financial instruments. As a result of the latest assessment,
Ricoh did not anticipate any material losses in these areas for fiscal
year 2006, and there were no m aterial quantitative changes in market
risk exposure as of March 31, 2006. In the norm al 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 m anage 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 sam e maturities as the
underlying assets and liabilities.
The table provides inform ation about Ricoh’s material derivative
financial instrum ents 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 am ounts 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
agreem ents to reduce interest rate risk and to m odify the interest rate
characteristics of its outstanding debt. These agreements primarily
involve the exchange of fixed and floating rate interest paym ents over
the life of the agreement without the exchange of the underlying
principal am ounts.
The table provides inform ation 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
21 ANNUAL REPORT 2006
FOREIGN EXCHANGE FORWARD CONTRACTS
Millions of Yen Thousand of U.S. Dollar
Average contractual Contract Estim ated Contract Estim ated
rates am ounts fair value amounts fair value
US$/¥ 118.37 ¥592 ¥ 6 $5,060 $51
EUR/¥ 140.40 2,359 ( 33) 20,162 ( 282)
2004 2005
2006
Return on sales 5.2% 4.6%
5 .1 %
Return on shareholders’
investm ent 12.6% 10.0%
10.6%
Current ratio 1.69 1.53
1 .5 3
Debt-to-equity ratio
( interest-bearing debt to
shareholders’ investm ent) 0.54 0.48
0 .4 0
Interest coverage 28.7 29.4
2 9 .6