Ricoh 1999 Annual Report Download - page 28

25
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 order to manage
these risks that arise in the normal course of business, Ricoh enters into hedging
transactions pursuant to its policies and procedures 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 proce-
dures 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.
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 of less than six
months, while the contracts with respect to the financing activities 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.
gations, the table presents principal cash flows by expected maturity date and
related weighted average interest rates. For interest rate swaps, the table pre-
sents notional amounts by expected maturity date and weighted average
interest rates. Notional amounts are generally used to calculate the contrac-
tual payments to be exchanged under the contract.
C REDIT R ISK
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 diver-
sity of high credit rated financial institutions to minimize the concentration
of credit risk. Therefore, Ricoh does not expect to incur material credit losses
on its financial instruments.
Year 2000
The Year 2000 (Y2K) problem has occurred because computer systems and
equipment and facilities incorporating microchips express years in two digits
instead of four. As a result, programs could misinterpret “00” as the year
1900, causing miscalculations and failure with date-sensitive information.
Ricoh is tackling Y2K for its products through specialized teams within
its sales operations in Japan and overseas.
Ricoh has appointed a director to oversee its overall in-house systems.
This director reports directly to the president. In addition, the Company
maintains a groupwide information systems committee to address Y2K issues.
Ricoh’s Y2K responses cover four phases. The first is to conduct initial
surveys. The second is to plan responses. The third is to implement respons-
es. The fourth is to monitor progress.
The Company’s Y2K effort encompasses the four following areas:
1. Products
In June 1998, Ricoh began notifying customers for core products through
sales companies. Changes to avoid Y2K problems are almost complete. Ricoh
aims to finish work on other offerings by the end of September 1999. The
Company has publicized its Y2K information and relevant contact details at
the following website: http://www.ricoh.co.jp/year2000/index.html
2. Information Systems
1) Software
Ricoh has completed Y2K compliance work on core business systems,
notably order, shipping, production, inventory, and accounts management
setups. Data link testing mostly ended by June 1999, and should be done by
September 1999.
2) Hardware (Computers)
The Company completed most of its readiness program for mainframes and
main servers by the end of June 1999. Outstanding tasks should end in
September 1999. Y2K implementation for personal computers is almost
finished, with all units being ready by September 1999.
US$/¥
Dfl/¥
F
OREIGN E XCHANGE F ORWARD C ONTRACTS
Contract amountsContract amounts
Thousands of
U.S. dollarsMillions of yen
Average contractual
rates
116.12
59.88 ¥ 31,724 21,136 $ 262,182 174,678
I NTEREST R AT E R ISK
In the ordinary course of business, Ricoh enters into interest rate swap agree-
ments to reduce interest rate risk and to modify the interest rate characteris-
tics 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 in-
terest rates, including interest rate swaps and debt obligations. For debt obli-